Current Report Filing (8-k)

GLUX Great Lakes Aviation Ltd (CE)

Latest GLUX Messages

Great Lakes Aviation Ltd News

Your Recent History

Loading Messages....

Loading Messages....

Boards:

Quotes:

Boards

News

Market Data

Markets

Discover

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) December 22, 2014

Great Lakes Aviation, Ltd.

(Exact name of registrant as specified in its charter)

Iowa

0-23224

42-1135319

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

1022 Airport Parkway

Cheyenne, WY 82001

(Address of principal executive offices, including zip code)

(307) 432-7000

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01

Entry Into a Material Definitive Agreement.

On December 22, 2014, Great Lakes Aviation, Ltd. (the “Company”) entered into the Loan Agreement (the “Loan Agreement”) with Callidus Capital Corporation (the “Lender”).

Pursuant to the Loan Agreement, the Lender agreed to make available to the Company: (i) a $25,000,000 single advance term loan facility, (ii) a revolving loan facility with availability of up to $6,000,000 and (iii) a second revolving loan facility with availability of up to $3,000,000. The $25,000,000 term loan was disbursed at closing, and substantially all of its proceeds were used to pay all outstanding borrowings, fees and expenses under the Credit Agreement dated November 6, 2011 as amended between the Company and Crystal Financial LLC and other lenders (the “Refinanced Credit Agreement”). The revolving loan facilities may be used for the Company’s working capital needs.

The loans under the Loan Agreement mature on December 22, 2017 at which time all outstanding principal balances will be due and payable. No amortization payments will be required until the maturity date. Outstanding principal under the term loan and revolving loans will bear interest at a rate of 14% per year. In addition, the Company paid a 1% facility fee at closing and will be required to pay a 1.25% facility fee on the maturity date or in an event of default. The Company will also be assessed a 1% unused line fee. In connection with the Loan Agreement, the Company granted first-ranking security interests to the Lender covering substantially all of the assets of the business. The Loan Agreement contains certain affirmative and negative covenants which are usual and customary with asset based loans, and the Company agreed to maintain a fixed charge coverage ratio.

The forgoing description does not purport to be complete and is qualified in its entirety by reference to the Loan Agreement and related documents, copies of which are filed as Exhibits 10.1, 10.2 and 10.3 hereto and are incorporated herein by reference.

Item 1.02

Termination of a Material Definitive Agreement.

On December 22, 2014, in connection with the Loan Agreement described above, the Company repaid obligations totaling $24.9 million, which constituted all outstanding borrowings, fees and expenses under the Refinanced Credit Agreement. In connection with the repayment, Crystal Financial LLC and other lenders under the Refinanced Credit Agreement terminated their security agreements and released all of their security interests in the Company’s aircraft and other assets.

Item 2.03

Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth in Items 1.01 is incorporated by reference into this Item 2.03.

Forward-Looking Statements

This Current Report on Form 8-K contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. Forward-looking statements represent our management’s judgment regarding future events. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the Company can give no assurance that such expectations will prove to be correct. All statements other than statements of historical fact included in this Current Report on Form 8-K are forward-looking statements. The Company cannot guarantee the accuracy of the forward-looking statements, and the Company’s actual

results could differ materially from those contained in any forward-looking statements due to a number of factors, including the statements under the heading “Risk Factors” contained in the Company’s filings with the Securities and Exchange Commission. Accordingly, such forward-looking statements are subject to a number of risks and uncertainties and may cause actual results to differ materially from the Company’s expressed expectations.

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits.


Exhibit No.		Description

10.1		Loan Agreement dated as of December 22, 2014, between Great Lakes Aviation, Ltd., and Callidus Capital Corporation.

10.2		Aircraft, Engines, Spare Engines, Propellers, Spare Propellers and Spare Parts Mortgage and Security Agreement dated December 22, 2014 Great Lakes Aviation, Ltd., and Callidus Capital Corporation.

10.3		Security Agreement dated December 22, 2014 between Great Lakes Aviation, Ltd., and Callidus Capital Corporation.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 10.1

LOAN AGREEMENT

DATED AS OF DECEMBER 22, 2014

BETWEEN

GREAT LAKES AVIATION, LTD.

as Borrower,

and

CALLIDUS CAPITAL CORPORATION,

as Lender

TABLE OF CONTENTS


1.	DEFINITIONS:	1
2.	LOANS.	13
3.	FACILITY A LOAN AVAILABILITY:	13
4.	ADVANCES OF FACILITY A LOAN:	14
5.	FACILITY B LOAN AVAILABILITY:	15
6.	ADVANCES OF FACILITY B LOAN:	16
7.	ADVANCE OF FACILITY C LOAN:	16
8.	RESERVED.	16
9.	RESERVED.	16
10.	TERM:	16
11.	INTEREST RATE:	16
12.	PRINCIPAL PAYMENTS:	17
13.	MANDATORY PAYMENTS.	17
14.	PREPAYMENT:	18
15.	FACILITY FEE:	19
16.	MAINTENANCE AND MONITORING FEE AND UNUSED LINE FEE:	19
17.	SECURITY:	19
18.	CONDITIONS TO BORROWING:	21
19.	CASH MANAGEMENT SYSTEMS:	23
20.	REPRESENTATIONS:	24
21.	LENDER REPRESENTATIONS:	28
22.	COVENANTS:	28
23.	BORROWING BASE REPORTS; REPORTS:	34
24.	FIELD EXAMINATIONS/APPRAISALS:	36
25.	EXPENSES:	36
26.	EVENTS OF DEFAULT:	37
27.	TAXES:	40
28.	INTERNAL REVENUE SERVICE FORMS:	42
29.	RESERVED.	42
30.	ONE LOAN; MARSHALING; SURVIVAL	42
31.	USURY CEILING:	42
32.	CONSENT TO JURISDICTION:	43
33.	LAW OF NEW YORK:	43

SCHEDULES:


Schedule 18(a)(i):		Secured Indebtedness Paid at Closing
Schedule 19(d):		Cash Management Accounts
Schedule 20(a):		Significant Shareholders
Schedule 20(b):		Related Party Transactions
Schedule 20(e):		Intellectual Property
Schedule 20(g):		Defaults and Judgments
Schedule 20(j):		Permits
Schedule 20(k):		Permitted Debt and Permitted Liens
Schedule 20(p):		ERISA Matters
Schedule 20(q):		Collective Bargaining Agreements
Schedule 20(t):		Environmental Disclosures
Schedule 20(v):		Material Contracts
Schedule 20(w):		EAS Program Contracts
Schedule 20(x):		Eligible Fleet Equipment
Schedule 22(b)(x):		Collateral Locations

iii

LOAN AGREEMENT

This Loan Agreement (this “Agreement”) dated December 22, 2014, effective upon the “Effective Date” as defined below, is made between Great Lakes Aviation, LTD. (“Borrower”) and Callidus Capital Corporation (“Lender”). Borrower and Lender are referred to collectively as “Parties”, and individually as a “Party”. All dollar amounts are denominated in US Dollars. Borrower desires to obtain up to an amount of Thirty-Four Million Dollars ($34,000,000) in loans and Lender has approved providing such financing to (i) satisfy all obligations owed to GB Credit Partners, LLC and Crystal Capital LLC; (ii) satisfy all obligations of other secured lenders or lienholders who may prime Lender and other obligations described herein except as otherwise agreed by Lender; (iii) fund aircraft refurbishment and other capital expenditures solely for the use of Borrower; and (iv) provide working capital solely for the use of Borrower, each on the terms and conditions set forth in this Agreement.

Accordingly, for valuable consideration, the parties hereto agree as follows:

1.	DEFINITIONS:

In addition to terms defined elsewhere in this Agreement, the following terms shall have the following meanings:

(a)

“Account” has the meaning attributed thereto in the UCC, and “Account Debtor” means the party who is obligated under any Account.

(b)

“Act” means subtitle VII of Title 49 of the United States Code.

(c)

“Additional Closing Documents” has the meaning attributed thereto in Paragraph 17(b) of this Agreement.

(d)

“Affiliate” means any Person which, directly or indirectly controls or is controlled by or is under common control with Borrower. For purposes of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), with respect to any Person, means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person through the ownership of voting securities in excess of 10% of the outstanding voting securities of such Person.

(e)

“Applicable Laws” means, with respect to any Person, property, transaction or event, all present or future statutes, regulations, rules, orders, codes, treaties, conventions, judgments, awards, determinations and decrees of any governmental, administrative, regulatory, fiscal or monetary body or court of competent jurisdiction, in each case, having the force of law in any applicable jurisdiction.

(f)

“Applicable Taxes” has the meaning attributed thereto in Paragraph 27(a) of this Agreement.

(g)

“August 2014 Appraisal” means the Audit, Inspection & Valuation of Aircraft, Spares, Inventory and Inventory Control Procedures of Great Lakes Aviation, Ltd., prepared for Crystal Financial LLC by Sage-Popovich, Inc. as of August 2014.

(h)

“Blocked Account” means Account No. [*] maintained at Wells Fargo.

(i)

“Business Day” means any day other than a Saturday or a Sunday or any other day on which banks are closed for business in Toronto, Ontario, Canada or New York, New York.

(j)

“Cape Town Treaty” has the meaning attributed thereto in 49 U.S.C. Section 44113(3).

(k)

“Capital Expenditures” has the meaning attributed thereto in Paragraph 23(b)(xx).

(l)

“Cash Management Account” has the meaning attributed thereto in Paragraph 19(a).

(m)

“Casualty Event” means, with respect to any property of any Person, any loss of title with respect to such property or any loss of or damage to or destruction of, or any condemnation or other taking (including by any governmental authority) of, such property for which, as to all of the foregoing, such Person receives insurance proceeds or proceeds of a condemnation award or other compensation.

(n)

“Collateral” means collectively, all property and assets covered by the Security Agreements.

(o)

“Collateral Access Agreement” means an agreement in form and substance satisfactory to the Lender pursuant to which all warehouseman, processor or other bailee of inventory or other property owned by Borrower acknowledges the Liens under the Security Agreements and subordinates or waives any Liens (other than Permitted Liens) held by such Person on such property.

(p)

“Closing Date” means December 22, 2014.

(q)

“Credit Document” means any of this Agreement, the Security Agreements and all other documents to be executed and delivered to the Lender by Borrower or any other Person in connection with the Obligations, as the case may be, as the same have been or may at any time and from time to time hereafter be amended, restated, supplemented, otherwise modified or replaced and all such documents, collectively, the “Credit Documents”.

(r)

“Credit Facility Amount” means Thirty-Four Million Dollars ($34,000,000).

(s)

“Default” means an event, which with the giving of notice or passage of time, or both, would constitute an Event of Default.

(t)

“Disbursement Account” means Account No. [*] at Wells Fargo.

(u)

“EAS Program” means the Essential Air Services Program operated by the United States Department of Transportation. “EAS Program Contract” means a contract arising under the EAS Program.

(v)

“EBITDA” means the total (without duplication) of Net Income of Borrower for the applicable period, plus, to the extent deducted in the determination of Net Income (a) the aggregate amount of Borrower’s depreciation and amortization expense, (b) the aggregate amount of Borrower’s interest expense, (c) the aggregate amount of Borrower’s income tax expense for such period; all as determined in accordance with GAAP. For purposes of determining EBITDA, “Net Income” will be determined exclusive of any amounts attributable to: (i) any upward or downward inventory adjustments except to the extent an inventory adjustment is required by Borrower’s independent certified public accountants under GAAP as part of preparing Borrower’s annual audited financial statements and for which Lender is given notice of the amount thereof; (ii) any gain or loss arising from the sale of capital assets; (iii) any gain or loss arising from the write-up or write-down of any assets; (iv) any extraordinary gains or losses; (v) any gains or losses recognized by Borrower as earnings or losses which relate to adjustments made by Borrower as a result of any extraordinary accounting adjustment; and (vi) any other non-operating, non-recurring gains or losses from time to time occurring, determined in accordance with GAAP.

(w)

“Effective Date” has the meaning given in Paragraph 18(a) herein.

(x)

“Eligible Accounts Receivable” means Accounts owed solely to Borrower from arm’s length third parties that are unrelated to and unaffiliated with Borrower (including any shareholder, member, officer, director, employee and agent thereof) and that:

(i)

are evidenced by Borrower’s standard invoice therefor, or in the case of receivables related to the EAS Program by electronic report, and arise from actual and bona fide completed provision of services by Borrower, in each case in the ordinary course of its business;

(ii)

in respect of any individual invoice, are less than ninety (90) days old (the “Account Aging”) from the date of the original invoice or other writing evidencing such Account;

(iii)

are not subject to any disputes, contras, set-offs, hold-backs or right of return or deferred revenue, except as reflected in the Facility A Weekly Borrowing Base Report and otherwise expressly determined by Lender to be eligible hereunder;

(iv)

Reserved;

(v)

are and continue to be acceptable to Lender, in its sole discretion, for margining purposes;

(vi)

are not owed by an Account Debtor who has failed to pay fifty percent (50%) or more of the aggregate amount of its accounts receivable owing to Borrower within ninety (90) days (the “Account Cross-Aging”) after the date of the respective invoices or other writings evidencing such Accounts;

(vii)

are not owed by an Account Debtor that has filed or has filed against it a petition for bankruptcy, restructuring, insolvency, assignment for benefit of creditors, receivership or any other type of relief under insolvency laws;

(viii)

are not subject to any Lien in favor of any Person other than Permitted Liens; and

(ix)

are subject to a first priority Lien in favor of Lender subject only to Statutory Liens disclosed to Lender.

(y)

“Eligible Fleet Equipment” means Equipment that is aircraft, spare engines and propellers owned solely by Borrower which is used in the ordinary course of Borrower’s operations, and that:

(i)

is listed in the most recent equipment appraisal commissioned by Borrower and is not then in the possession of a third party for repair, maintenance or refurbishment;

(ii)

is and continues to be acceptable to Lender, in its sole discretion, for margining purposes and which has been approved in writing by Lender;

(iii)

is insured under an all-risks insurance policy acceptable to Lender in its sole discretion and with respect to which Lender has received a certificate of such insurance showing Lender as lender loss payee;

(iv)

is not subject to any Lien in favor of any Person other than Permitted Liens; and

(v)

is subject to a first priority Lien in favor of Lender subject only to Statutory Liens disclosed to Lender.

(z)

“Eligible Investment Grade Accounts Receivable” means an Account (a) which satisfies all of the requirements for an Eligible Accounts Receivable except that, from the definition of Eligible Accounts Receivable, the Account Aging and the Account Cross-Aging will be 120 days; and (b) for which each of the applicable Account Debtors is either (i) a Governmental Entity; or (ii) has a short term credit rating assigned by Standard & Poor’s of BBB (or the equivalent rating from any other nationally recognized statistical rating organization) or higher.

(aa)

“Eligible Parts Inventory” means Inventory owned by Borrower that is rotable and consumable parts used by Borrower to operate its airline business and maintain its aircraft fleet which:

(i)

is (A) immediately useable in the operation or maintenance of aircraft owned solely by Borrower which are subject to Lender’s first priority lien; and (B) is not in a state of disrepair or offsite for maintenance or refurbishment;

(ii)

is and continues to be acceptable to Lender, in its sole discretion, for margining purposes and which has been approved in writing by Lender;

(iii)

is insured under an all-risks insurance policy acceptable to Lender in its sole discretion and in which Lender is named as the lender loss payee, and a certified copy of which is provided to Lender by Borrower;

(iv)

is not subject to any Lien in favor of any Person other than Permitted Liens;

(v)

is subject to a first priority Lien in favor of Lender; and

(vi)

is not purchased or sold on consignment.

(bb)

“Eligible Unbilled Accounts” means, at any time, the aggregate of those amounts owing to Borrower for which each of the following statements is true, and which Lender has not otherwise determined to be ineligible in Lender’s judgment exercised in good faith:

(i)

Actual services under an EAS Program Contract have been performed which will give rise to accounts in the amount of such Eligible Unbilled Account owing by Department of Transportation owing for such services and there is evidence of the performance of such services reasonably acceptable to Lender.

(ii)

Except for the fact that they have not been invoiced, such amount owing to Borrower would constitute an Eligible Account Receivable.

(cc)

Such amount has not been included in the borrowing base as an Eligible Unbilled Account for greater than thirty-one (31) days.

(dd)

“Environmental Claim” means any third party (including Governmental Authorities and employees) action, lawsuit, claim or proceeding (including claims or proceedings at common law or under the Occupational Safety and Health Act or similar laws relating to safety of employees) which seeks to impose liability in excess of $250,000 for (i) noise; (ii) pollution or contamination of the air, surface water, ground water or land or the clean-up of such pollution or contamination; (iii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; (v) the safety or health of employees; (vi) the manufacture, processing distribution in commerce or use of Hazardous Substances. An “Environmental Claim” includes a common law action, as well as a proceeding to issue, modify or terminate an Environmental Permit, or to adopt or amend a regulation to the extent that such a proceeding attempts to redress violations of an applicable permit, license, or regulation as alleged by any Governmental Entity.

(ee)

“Environmental Liabilities” means all liabilities in excess of $250,000 arising from any Environmental Claim, Environmental Permit, Environmental Matter or legal requirement, under any theory of recovery, at law or in equity, and whether based on negligence, strict liability or otherwise, including remedial, removal, response, abatement, restoration (including natural resources), investigative, monitoring, personal injury and damage to property or natural resources or injuries to persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and obligations, and all costs and expenses necessary to cause the issuance, reissuance or renewal of any Environmental Permit, including reasonable attorneys’ fees and court costs.

(ff)

“Environmental Matters” means matters relating to pollution or protection of the environment, including emissions, discharges, releases or threatened releases of Hazardous Substances into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances.

(gg)

“Environmental Permit” means any permit, license, approval or other authorization under any applicable legal requirement relating to pollution or protection of health or the environment, including laws, regulations or other requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or Hazardous Substances.

(hh)

“Equipment” has the meaning attributed thereto in the UCC.

(ii)

“ERISA” means the United States Employee Retirement Income Security Act of 1974, as amended.

(jj)

“ERISA Affiliate” means a member of Borrower’s “controlled group” as such term is defined in Section 4001(a)(14) of ERISA.

(kk)

“ERISA Event” means (a) a “reportable event” described in Section 4043 of ERISA (other than a reportable event for which notice requirements are waived or would not reasonably be expected to have a Material Adverse Effect), (b) the filing of a notice of intent to terminate any “defined benefit plan” (within the meaning of Section 3(35) of ERISA and that is subject to Title IV of ERISA) sponsored by Borrower pursuant to Section 4041(c) of ERISA, and (c) the institution of proceedings to terminate such defined benefit plan by the United States Pension Benefit Guaranty Corporation pursuant to Section 4042 of ERISA.

(ll)

“ET” means eastern daylight savings or standard time, as the case may be.

(mm)

“Event of Default” has the meaning attributed thereto in 27 of this Agreement.

(nn)

“FAA” means Federal Aviation Administration.

(oo)

“Facility A Loan” has the meaning attributed thereto in Paragraph 2(a) of this Agreement.

(pp)

“Facility A Loan Availability” has the meaning attributed thereto in Paragraph 3 of this Agreement.

(qq)

“Facility A Weekly Borrowing Base Report” has the meaning attributed thereto in Paragraph 3 of this Agreement.

(rr)

“Facility B Loan” has the meaning attributed thereto in Paragraph 2(b) of this Agreement.

(ss)

“Facility B Loan Availability” has the meaning attributed thereto in Paragraph 5 of this Agreement.

(tt)

“Facility B Weekly Borrowing Base Report” has the meaning attributed thereto in Paragraph 5 of this Agreement.

(uu)

“Facility C Loan” has the meaning attributed thereto in Paragraph 2(c) of this Agreement.

(vv)

“FARs” means the Federal Aviation Regulations embodied in Title 14 of the U.S. Code of Federal Regulations, as amended from time to time, or any successor regulations.

(ww)

“FATCA” means Sections 1471 through 1474 of the Code, any regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.

(xx)

“Fixed Charge Coverage Ratio” means, with respect to any Test Period, the ratio of (a) the difference of (i) EBITDA for such Test Period less (ii) unfinanced Capital Expenditures for such Test Period, to (b) Fixed Charges for such Test Period, as determined for the Borrower in accordance with GAAP.

(yy)

“Fixed Charges” means, for the applicable Test Period, the total (without duplication) of (all as determined in accordance with GAAP): (a) the principal amounts of Borrower’s long-term Indebtedness which are scheduled or mandated to be paid during the applicable period (excluding any Indebtedness paid to Prior Lenders); plus (b) Borrower’s aggregate cash payments of interest for the applicable period, including interest paid on the Obligations, all capital lease obligations and any other Indebtedness for the applicable period; plus (c) the principal portion of capital lease obligations paid or which were scheduled to be paid by Borrower during the applicable period; plus (d) the aggregate amount of Borrower’s cash payments of income and franchise taxes for the applicable period.

(zz)

“Forced Liquidation Value” has the meaning set forth in the most recent appraisal that is acceptable to Lender in its sole discretion which appraisal will use industry standard valuation methodology and assumptions.

(aaa)

“GAAP” means generally accepted accounting principles in the United States in effect from time to time and for the period as to which such accounting principles are to apply without giving effect to any change to lease accounting rules from those in effect pursuant to FASB ASC 840 and other related lease accounting guidance as in effect on the Closing Date; provided, however, that in the event Borrower modifies its accounting principles and procedures as applied as of the date hereof, Borrower shall provide such statements of reconciliation as shall be in form and substance acceptable to Lender. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, indebtedness will be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 on financial liabilities shall be disregarded.

(bbb)

“Governmental Entity” means any (i) multinational, federal, state, municipal, local or other government, governmental or public department, central bank, court, commission, board, bureau, agency or instrumentality, domestic or foreign; (ii) any subdivision or authority of any of the foregoing; or (iii) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the above.

(ccc)

“Hazardous Substances” means petroleum products and any pollutants, hazardous or toxic waste or substance defined or regulated from time to time by any law, rule, regulation or order.

(ddd)

“Indebtedness” means all of Borrower’s indebtedness, obligations, and liabilities to any Person, including: (a) the Obligations, (b) all indebtedness, obligations, and liabilities of Borrower secured by a Lien on property owned by Borrower, even though Borrower has not assumed or become liable for the payment therefor, (c)

all indebtedness, obligations, or liabilities created or arising under any guaranty or any lease of real or personal property, or conditional sales contract or other title retention agreement with respect to property used or acquired by Borrower, even though the rights and remedies of the lessor, seller or lender thereunder are limited to repossession of such property, and (d) all other debts, claims and indebtedness, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, however evidenced, created, incurred, acquired or owing and however arising, whether under written or oral agreement, operation of law, or otherwise.

(eee)

“Indemnified Person” has the meaning attributed thereto in Paragraph 25 of this Agreement.

(fff)

“International Interest” as the meaning attributed thereto in the Cape Town Treaty.

(ggg)

“Inventory” has the meaning attributed thereto in the UCC.

(hhh)

“Lien” means any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement or arrangement, prior claim, hypothec, levy, execution, seizure, attachment, garnishment, right of distress, restrictive covenant or other encumbrance of any nature or any other arrangements or condition that in substance secures payment or performance of an obligation, or other claim in respect of property of any nature or kind whatsoever howsoever arising (whether consensual, statutory or arising by operation of law or otherwise) and includes arrangements known as sale and lease-back, sale and buy-back and sale with option to buy-back or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under UCC (or equivalent statutes) of any jurisdiction.

(iii)

“Loan” means each advance made under Facility A Loan, Facility B Loan, and Facility C Loan, including all over formula and over advances made thereunder, and “Loans” means collectively all of the foregoing.

(jjj)

“Material Adverse Effect” means any change, condition or event which, when considered individually or together with other changes, conditions and events, could reasonably be expected to have a material adverse effect (i) on the business, revenues, operations, assets, liabilities (contingent or otherwise), financial condition or prospects of Borrower; (ii) on the rights and remedies of the Lender under the Credit Documents; (iii) on the ability of Borrower to perform its obligations under the Credit Documents; or (iv) on the Liens created by the Security Agreements.

(kkk)

“Material Contract” has the meaning set forth in Paragraph 20(v) of this Agreement.

(lll)

“Maximum Rate” has the meaning attributed thereto in Paragraph 31 of this Agreement.

(mmm)

“Maximum Facility A Amount” means Three Million Dollars ($3,000,000).

(nnn)

“Maximum Facility B Amount” means Six Million Dollars ($6,000,000).

(ooo)

“Multiemployer Plan” has the meaning attributed thereto in Paragraph 26(u) of this Agreement.

(ppp)

“Net Book Value” means the invoice cost minus depreciation and amortization.

(qqq)

“Net Orderly Liquidation Value” has the meaning set forth in the most recent appraisal that is acceptable to Lender in its sole discretion, which appraisal will use industry standard valuation methodology and assumptions.

(rrr)

“Notes” means collectively the Facility A Note, the Facility B Note, and the Facility C Note, and “Note” means each of them individually.

(sss)

“Obligations” means all loans, advances, indebtedness, obligations and liabilities of Borrower to Lender under this Agreement, the Notes, and the other Credit Documents, together with all other indebtedness, obligations and liabilities whatsoever of Borrower to Lender, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or hereafter arising.

(ttt)

“Other Taxes” has the meaning attributed thereto in Paragraph 27(c) of this Agreement.

(uuu)

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

(vvv)

“Pension Plan” means any plan established and maintained by Borrower, or contributed to by Borrower, which is qualified under Section 401(a) of the Internal Revenue Code and subject to the minimum funding standards of Section 412 of the internal Revenue Code.

(www)

“Permits” means all licenses and permits required by any Governmental Entity for the operations of the Borrower.

(xxx)

“Permitted Debt” has the meaning attributed thereto in Paragraph 22(b)(xviii) of this Agreement.

(yyy)

“Permitted Liens” means, without Lender having or being deemed to have acknowledged, acquiesced or agreed to the quantum secured by such Liens or to the priority, enforceability, or validity of such Liens:

(i)

any “purchase money security interests” (as defined in the UCC) or vendor’s hypothecs or other Liens, in each case on Equipment used by Borrower in the operation of its business and which is not for resale, lease or rental to its customers, and which is assumed, created or reserved to secure the unpaid purchase price of such equipment provided that any such Lien is limited to the Equipment so acquired and the maximum amount so secured does not exceed $250,000 in aggregate at any time;

(ii)

Liens listed in Schedule 20(k) attached hereto;

(iii)

any Statutory Liens; and,

(iv)

any other Lien or Lien permitted under the terms of the Credit Documents or otherwise consented to, in writing, by the Lender.

(zzz)

“Person” includes a natural Person, a partnership, a joint venture, a trust, a fund, an unincorporated organization, a company, a corporation, an association, a government or any department or agency thereof, and any other incorporated or unincorporated entity.

(aaaa)

“Prior Lenders” means those lenders that have been paid on the Closing Date from proceeds of the Loans.

(bbbb)

“Priority Claims” means the aggregate of any amounts accrued or payable by Borrower, which under any law may be secured by liens that rank prior to or pari passu with any of the liens and security interests granted under the Security Agreements or otherwise in priority to or pari passu with any claim by Lender for payment or repayment of any amounts owing under this Agreement.

(cccc)

“Prospective Assignment” has the meaning attributed thereto in the Capetown Treaty.

(dddd)

“Prospective International Interest” has the meaning attributed thereto in the Capetown Treaty.

(eeee)

“related Person” has the meaning attributed thereto in Paragraph 19(c) of this Agreement.

(ffff)

“Repayment Date” has the meaning attributed thereto in Paragraph 10(a) of this Agreement.

(gggg)

“Report Day” means the date of the week agreed to by Borrower and Lender, or if such day is not a Business Day, the next Business Day thereafter.

(hhhh)

“Security Agreements” means, collectively, the security agreements referred to in Paragraph 17, and any other agreements under which any security is granted to the Lender, as security for the Obligations of Borrower under this Agreement and the other Credit Documents, as the same have been or may at any time and from time to time hereafter be amended, restated, supplemented, otherwise modified or replaced.

(iiii)

“Statutory Liens” means any Liens arising by operation of Applicable Laws, including, without limitation, for carriers, warehousemen, repairers’, taxes, assessments, statutory obligations and government charges and levies for amounts not yet due and payable or which may be past due but which are being contested in good faith by appropriate proceedings (and as to which there are no other enforcement proceedings or they shall have been effectively stayed).

(jjjj)

“Tax” and “Taxes” means all present and future taxes, surtaxes, duties, levies, imposts, rates, fees, assessments, withholdings and other charges of any nature (including income, corporate, capital (including large corporations), net worth, sales, consumption, use, transfer, goods and services, value-added, stamp, registration, franchise, withholding, payroll, employment, health, education, employment insurance, pension, excise, business, school, property, occupation, customs, anti-dumping and countervail taxes, surtaxes, duties, levies, imposts, rates, fees, assessments, re-assessments, withholdings and other charges) imposed by any governmental authority, together with any fines, interest, penalties or other additions on, to, in lieu of, for non-collection of or in respect of those taxes, surtaxes, duties, levies, imposts, rates, fees, assessments, withholdings and other charges.

(kkkk)

“Term of this Agreement” means the period from and including the Effective Date to and including the date on which all amounts owing by Borrower to the Lender hereunder have been paid in full and the Lender has no further obligations hereunder.

(llll)

“Test Period” means each 12 Month Period ending on the last day of each fiscal quarter of the Borrower. “12 Month Period” means, in respect of a date as of which the applicable financial covenant is being calculated, the twelve consecutive fiscal months ending on or immediately preceding the date as of which the financial covenant is being calculated (i.e., a rolling 12 fiscal month period).

(mmmm)

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests.

(nnnn)

“Wells Fargo” means Wells Fargo Bank, National Association, a national banking association.

Words importing the singular include the plural thereof and vice versa and words importing gender include the masculine, feminine and neuter genders.

2.	LOANS.

Lender hereby agrees to make available to Borrower on the terms and conditions set forth herein, and Borrower hereby unconditionally promises to pay to Lender upon the earlier of the Repayment Date or an Event of Default, all unpaid principal and accrued interest outstanding under the following Credit Facilities:

(a)

A revolving loan facility in the maximum principal amount of up to Three Million Dollars ($3,000,000) (the “Facility A Loan”);

(b)

A revolving loan facility in the maximum principal amount of up to Six Million Dollars ($6,000,000) (the “Facility B Loan”);

(c)

A single advance term loan facility in the maximum principal amount of up to Twenty-Five Million Dollars ($25,000,000) (the “Facility C Loan”);

3.	FACILITY A LOAN AVAILABILITY:

The maximum amount that shall be available under the Facility A Loan at any time and from time to time will, subject to the maximum amount contemplated in Paragraph 4(c) of this Agreement, be determined by the Lender once each week (or more frequently as determined by the Lender) and will be limited during such week (or other period as aforesaid) in accordance with the following formula (the “Facility A Loan Availability”):

the aggregate of:

(a)

ninety percent (90%) of Eligible Investment Grade Accounts;

PLUS

(b)

eighty-five percent (85%) of Eligible Accounts Receivable (other than those accounts included in clause (a) above);

PLUS

(c)

seventy percent (70%) of Eligible Unbilled Accounts;

PLUS

(d)

the lesser of eighty-five percent (85%) of the Net Orderly Liquidation Value, or sixty percent (60%) of the Net Book Value of Eligible Parts Inventory;

LESS the aggregate of:

(e)

the amount of the Facility A Loan then outstanding, together with all amounts then due and payable by Borrower to Lender relating to Facility A Loan (including, without limitation, past due interest); and

(f)

without duplication of other reserves or deductions from Eligible Investment Grade Accounts Receivables, Eligible Accounts Receivable, Eligible Unbilled Accounts, or the Net Orderly Liquidation Value, or the cost or fair market value book value of Eligible Parts Inventory:

a reserve of Three Million, Five Hundred Thousand Dollars ($3,500,000);

ii.

all contras, deductibles, holdbacks, setoffs and recoupments that an Account Debtor asserted or to which Borrower has reason to believe such assertion will be made;

iii.

a Forty-five Thousand Dollar reserve for expected contra payments to be adjusted up or down in Lender’s discretion after completion of each field audit;

iv.

all deposits received for application to future services or obligations to Account Debtors;

reserves, determined by the Lender in its sole discretion, in respect of actual and/or potential Priority Claims and/or Statutory Liens;

vi.

all deductibles under all applicable insurance policies of Borrower; and

vii.

other reserves, as determined by Lender in its sole discretion.

On the Report Day, or if such day is not a Business Day, the next Business Day thereafter, prior to 1:00 p.m. ET, Borrower will provide a certified report (a “Facility A Weekly Borrowing Base Report”) to the Lender (in such form as the Lender shall reasonably require) setting forth the information required pursuant to Paragraph 23(a) and as otherwise required by Lender.

4.	ADVANCES OF FACILITY A LOAN:

(a)

Facility A Loan advances to be made hereunder shall be the lesser of Borrower’s requested advance in its Facility A Weekly Borrowing Base Report and the then Facility A Loan Availability and will, less any amounts to be deducted therefrom as provided for hereunder, be deposited into Borrower’s Disbursement Account. Lender shall, upon receipt of Facility A Weekly Borrowing Base Report and any additional information requested, calculate the then existing Facility A Loan Availability and advise Borrower accordingly.

(b)

Provided that no Default or Event of Default has occurred and is continuing, and that at the time the advance is to be made the conditions contained in Paragraph 18 of this Agreement have been satisfied, Facility A Loan advances to be made hereunder shall, provided that the request for such advance is contained in a Facility A Weekly Borrowing Base Report and that such Facility A Weekly Borrowing Base Report is received by the Lender prior to 1:00 p.m. ET on the Report Day, be made no later than the close of business on the next Business Day.

(c)

Notwithstanding anything to the contrary contained in this Agreement, Facility A Loan advances shall be made by the Lender only to the extent of the then Facility A Loan Availability as calculated by the Lender, in its sole discretion, and, further, subject to an aggregate maximum amount outstanding under Facility A Loan of Three Million Dollars ($3,000,000), including past due interest owing on the amount of the Facility A Loan then outstanding, and (without duplication of other reserves or deductions) past due fees and expenses.

5.	FACILITY B LOAN AVAILABILITY:

The maximum amount that shall be available under the Facility B Loan at any time and from time to time will, subject to the maximum amount contemplated in Paragraph 6(c) of this Agreement, be determined by the Lender once each week (or more frequently as determined by the Lender) and will be limited to the following formula (the “Facility B Loan Availability”):

(a)

The amount of 90% of the Forced Liquidation Value of the Eligible Fleet Equipment less the principal and past-due interest on the Facility C Loan;

LESS the aggregate of:

(b)

the amount of the Facility B Loan then outstanding, together with all amounts then due and payable by Borrower to Lender relating to Facility B Loan (including, without limitation, past due interest);

(c)

without duplication of other reserves, reserves, determined by the Lender in its sole discretion, in respect of actual and/or potential Priority Claims and/or Statutory Liens; and

(d)

without duplication of other reserves, any other reserves, determined by the Lender in its sole discretion.

On the Report Day, or if such day is not a Business Day, the next Business Day thereafter, prior to 1:00 p.m. ET, Borrower will provide a certified report (a “Facility B Weekly Borrowing Base Report”) to the Lender (in such form as the Lender shall reasonably require) providing, as at the end of the preceding week, the information set forth in Paragraph 23(b). The Lender shall, upon receipt of such report, calculate the then existing Facility B Loan Availability and advise Borrower accordingly.

6.	ADVANCES OF FACILITY B LOAN:

(a)

Facility B Loan advances to be made hereunder shall be the lesser of Borrower’s requested advance in its Facility B Weekly Borrowing Base Report and the then Facility B Loan Availability and will, less any amounts to be deducted therefrom as provided for hereunder, be deposited into Borrower’s Disbursement Account.

(b)

Provided that no Default or Event of Default has occurred and is continuing, and that at the time the advance is to be made the conditions contained in Paragraph 18 of this Agreement have been satisfied, Facility B Loan advances to be made hereunder shall, provided that the request for such advance is contained in a Facility B Weekly Borrowing Base Report and that such Facility B Weekly Borrowing Base Report is received by the Lender prior to 1:00 p.m. ET on the Report Day, be made no later than the close of business on the next Business Day.

(c)

Notwithstanding anything to the contrary contained in this Agreement, Facility B Loan advances shall be made by the Lender only to the extent of the then Facility B Loan Availability as calculated by the Lender, in its sole discretion, and, further, subject to an aggregate maximum amount outstanding under Facility B Loan of Six Million Dollars ($6,000,000), including past due interest owing on the amount of the Facility B Loan then outstanding, and (without duplication of other reserves or deductions) past due fees and expenses.

7.	ADVANCE OF FACILITY C LOAN:

On the Effective Date, Lender shall advance, and Borrower shall borrow the amount of Twenty-Five Million Dollars ($25,000,000), less any reserves thereon placed by Lender in its sole discretion.

8.	RESERVED.

9.	RESERVED.

10.

TERM:

The Obligations (including all accrued interest and all other amounts payable hereunder) shall be repaid in full (and any obligation of the Lender to make Loans hereunder shall be permanently cancelled) upon the earlier of:

(a)

December 22, 2017 (the “Repayment Date”); or

(b)

Demand by Lender following the occurrence of an Event of Default that is continuing and has not been waived by Lender in accordance with this Agreement.

11.

INTEREST RATE:

(a)

Interest on the principal amount outstanding of each Loan made hereunder and outstanding from time to time shall be calculated and accrue at the rate of fourteen percent per annum (14%), which interest shall be calculated on the basis of a year of 365 days, on the daily closing principal balance owing hereunder in respect of such Loan, not in advance, and shall be payable in cash on the last Business Day

of each month both before and after default and/or judgment as well after as before maturity. The first payment of interest hereunder shall be payable on the last Business Day of the month in which the Closing Date occurs, computed from the date of the Closing Date.

(b)

Interest on overdue interest and unpaid costs and expenses and other fees and charges contemplated herein which are not paid when due hereunder shall be calculated at the rate of seventeen percent (17%) per annum, shall be compounded monthly and shall be payable on demand.

(c)

All rates of interest accruing hereunder on all amounts outstanding from and after the first to occur of receipt of written notice of an Event of Default or the Repayment Date, shall be the rate of seventeen percent (17%) per annum, which interest shall be calculated on the basis of a year of 365 days, on the daily closing principal balance owing hereunder in respect of each Loan, and shall be payable in cash upon the earlier of (i) demand by Lender; or (ii) on the last Business Day of each month after an Event of Default or the Repayment Date.

(d)

A certificate of an authorized signing officer of Lender as to each amount and/or each rate of interest payable hereunder from time to time shall be conclusive evidence of such amount and of such rate, absent manifest error.

12.

PRINCIPAL PAYMENTS:

All Obligations shall be due and payable in full upon the earlier of the Repayment Date or demand following an Event of Default. Unless otherwise specifically set forth herein, Lender shall apply the amounts received in the Blocked Account (after payment of interest, fees and other mandatory payments hereunder) first to Facility A Loan and/or Facility B Loan until such balance is zero. Thereafter, Lender may retain such funds in the Blocked Account until requested by Borrower subject to this Agreement prior to an Event of Default.

13.

MANDATORY PAYMENTS.

(a)

Facility A Loan. Borrower shall immediately pay to Lender the amount, if any, by which the aggregate unpaid principal amount of Facility A Loan from time to time exceeds the lesser of the Maximum Facility A Amount or the Facility A Loan Availability, together with all interest accrued and unpaid on the amount of such excess.

(b)

Facility B Loan and Facility C Loan. Borrower shall immediately pay to Lender the amount, if any, by which the amount owed under Facility B Loan plus the amount owed under Facility C Loan exceeds ninety percent (90%) of the Forced Liquidation Value of the Eligible Fleet Equipment, which amount shall be applied by Lender first to the Facility B Loan until reduced to zero and then to the Facility C Loan.

(c)

Facility C Loan. Within one (1) Business Day of the date of receipt of any net proceeds from the sale of Eligible Fleet Equipment or from a Casualty Event with respect to Eligible Fleet Equipment, Borrower shall prepay the Facility C Loan in the amount of 90% of the Forced Liquidation Value of such Eligible Fleet Equipment with the remaining balance applied by Lender to Facility A Loan or Facility B Loan in Lender’s discretion; provided however, Borrower may retain the proceeds of a Casualty Event for one hundred eighty (180) days after receipt, for repair or to acquire replacement assets. Pending such repair or reinvestment, such proceeds shall be deposited in a deposit account of Borrower in which Lender has a perfected first-priority security interest, and such proceeds shall remain on deposit therein until such repair or reinvestment occurs in accordance with the terms set forth above or such proceeds are otherwise applied to the Obligations.

14.

PREPAYMENT:

(a)

Subject to Section 14(b), prepayment of the Loans, or any one of them, in part or in full (together with all accrued interest and other amounts payable hereunder) is permitted at any time. Notwithstanding any prepayment of Facility A Loan or Facility B Loan, Borrower may thereafter (but only until the Repayment Date) request additional Loans under Facility A Loan or Facility B Loan, as the case may be, hereunder provided that no Default or Event of Default has occurred which is then continuing, and that Borrower and Lender shall not have previously agreed that any obligation of Lender to make Loans hereunder be permanently cancelled.

(b)

Concurrently with any voluntary prepayment of all or any portion of Facility C Loan in excess of Ten Million Dollars ($10,000,000), upon voluntary prepayment of any other Loan, or upon acceleration of the Loans under this Agreement, the Borrowers shall pay to the Lender a prepayment premium equal to the applicable percentage of the prepayment set forth below dependent upon the date the prepayment is made:

during the period commencing on the Closing Date to the one year anniversary of the Closing Date;

during the period commencing on the day following the one year anniversary of the Closing Date and continuing to the two year anniversary of the Closing Date;

during the period commencing on the day following the two year anniversary of the Closing Date and continuing through May 19, 2017 ; and,

for any prepayment made on and after May 20, 2017.

The Borrower agrees that amounts payable pursuant to this Section are a reasonable pre-estimate of loss and not a penalty. Such amounts are payable as liquidated damages for the loss of bargain and payment of such amounts shall not in any way reduce, affect or impair any other obligations of the Borrower under this Agreement. Borrower may voluntarily pay up to Ten Million Dollars ($10,000,000) of Facility C Loan without assessment of the prepayment premium.

15.

FACILITY FEE:

Borrower shall pay a fully earned, non-refundable facility fee in the aggregate amount of: (i) one percent (1%) of the Credit Facility Amount payable on the Closing Date; and (ii) one and one quarter percent (1.25%) of the Credit Facility Amount payable the earlier of an Event of Default, or the Repayment Date. This facility fee is fully earned and nonrefundable as of the Closing Date.

16.

MAINTENANCE AND MONITORING FEE AND UNUSED LINE FEE:

(a)

Borrower shall pay a maintenance and monitoring fee in the amount of Three Thousand Dollars ($3,000.00) for each month. The aforesaid fee shall be paid monthly on the last Business Day of each month during which such fee is payable, as provided for herein, and, without duplication, upon repayment of all Obligations and permanent cancellation of any obligation of the Lender to make advances hereunder.

(b)

Borrower shall pay an unused line fee for each day of the term in an amount equal to one percent (1%) per annum of any unused portion of the Maximum Facility A Amount, plus one percent (1%) per annum of any unused portion of the Maximum Facility B Amount. The unused line fee for each month (except for the month in which the Repayment Date occurs) is payable in arrears on the last Business Day of each calendar month following the Effective Date; the final monthly installment of the unused line fee is payable on the Repayment Date. Notwithstanding the foregoing, any unpaid unused line fee is immediately due and payable on the date that the Obligations are indefeasibly repaid in full.

17.

SECURITY:

(a)

Credit Documents. The Loans shall be evidenced or secured by the following documents made by Borrower which shall be provided contemporaneously with the execution of this Agreement, shall be in form and substance satisfactory to Lender and shall be supported by all necessary resolutions and opinions (each in form and substance satisfactory to Lender and Lender’s counsel):

(i)

The Notes made by Borrower to evidence the Loans;

(ii)

An Aircraft Security Agreement to be filed with the FAA and other documents requested by Lender to grant Lender a perfected first priority security interest and lien in any aircraft, engines, spare engines, propellers, and spare parts related to the foregoing, with the originally executed of the foregoing delivered to Lender’s counsel in Oklahoma prior to Closing;

(iii)

Security Agreement from Borrower in favor of Lender granting a first-ranking security interest in all of its present and after-acquired personal property assets, including without limitation permits, licenses and intellectual property, in each case in form and substance satisfactory to Lender and in the order and as required by Lender; and

(iv)

An assignment of insurance from Borrower covering fire and such other risks (but excluding public liability insurance) and in such form and amount as Lender may require in respect of all of the Collateral and in respect of which Lender is shown as a loss payee.

(b)

Additional Closing Documents. In addition, Borrower shall provide Lender with the following (the “Additional Closing Documents”), in form and substance satisfactory to Lender:

(i)

such officer’s certificates and such legal opinions and other supporting documents as Lender shall require;

(ii)

all corporate, limited liability company, and shareholder and member resolutions necessary to permit and authorize Borrower to enter in this Agreement and the applicable Credit Documents;

(iii)

reserved;

(iv)

reserved

(v)

An irrevocable power of attorney (and any necessary authorizing documents) in a form acceptable to Lender, providing Lender with the power (in Lender’s sole discretion) to re-register (or renew the registration of) any Eligible Fleet Equipment (a “Re-registration POA”) should Borrower fail to timely complete such process.

(c)

Further Documents.

(i)

Borrower will from time to time at its expense duly authorize, execute and deliver to Lender such further instruments and documents and take such further action as Lender may reasonably request for the purpose of obtaining or preserving the full benefits granted or intended to be granted to Lender by the Credit Documents and of the rights and remedies therein granted to Lender, including without limitation, the filing of financing statements or other documents under any Applicable Law with respect to the Liens created thereby. Unless prohibited by Applicable Law, Borrower authorizes Lender to file any such financing statement or similar documents without the signature of Borrower.

(ii)

Borrower acknowledges that changes to Applicable Law may require the execution and delivery of different forms of documentation, and accordingly Lender shall have the right to require that the Security Agreements be amended, supplemented or replaced (and Borrower shall duly authorize, execute and deliver to Lender on request any such amendment, supplement or replacement with respect to any of the Security Agreements): (A) to reflect any change in Applicable Law, whether arising as a result of statutory amendments, court decisions or otherwise; or (B) to facilitate the creation and registration of appropriate forms of security in all applicable jurisdictions.

(iii)

Within 60 days after the date of this Agreement, Borrower will deliver to Lender landlord waivers or other acceptable acknowledgments from the landlords of the following locations:


Location		Landlord
1022 Airport Parkway Cheyenne, WY 82001		Cheyenne Airport Board

8900 Peña Boulevard A-52 Denver, CO 80249		Denver International Airport

1140 West Navajo Street Farmington, NM 87401		Four Corners Regional Airport

and all other locations where Borrower stores Inventory and/or Equipment having a collective value in excess of $150,000, provided that with respect to the 1204 Airport Parkway, Cheyenne, WY 82001 which Borrower leases on a month-to-month basis, Lender will reserve two months’ rent in lieu of a landlord waiver.

18.

CONDITIONS TO BORROWING:

(a)

Each of the following is a condition precedent to each Loan hereunder. The date that conditions precedent (i) through (xii) are first satisfied shall be the “Effective Date”:

(i)

The Lender shall have received from all of the secured creditors who have perfected against Borrower pursuant to the UCC or equivalent legislation, as applicable, (all of whom are listed in Schedule 18(a)(i)) full and final releases and discharges of such security and such registrations or payoff letters delivered by such creditors agreeing to deliver such original, executed releases and discharges to Lender’s counsel in Oklahoma prior to Closing to be filed upon receipt of payoff funds by such creditor;

(ii)

Borrower shall have opened and maintained the Disbursement Account at Wells Fargo;

(iii)

Reserved

(iv)

The Security Agreements shall have been duly executed and delivered;

(v)

The Lender shall have received the Additional Closing Documents required by the Lender for closing;

(vi)

At or prior to the time the Loan in question is to be made, no Default or Event of Default shall have occurred and be continuing;

(vii)

The Lender shall have completed all of its due diligence investigations and shall, in its sole discretion, be satisfied with the results of same;

(viii)

The Lender shall have received evidence satisfactory to it that all insurance coverage required by Lender is then in place;

(ix)

The Lender shall have received payment of all fees (including all legal fees of the Lender), expenses and other amounts then payable under the Credit Documents;

(x)

The Lender shall have timely received and shall, in its sole discretion, be satisfied with Borrower’s internally prepared financial statements and financial projections;

(xi)

No other event shall have occurred that, in the Lender’s sole discretion, materially adversely affects or could materially adversely affect either: (i) the business, assets, liabilities, prospects, financial condition or operations of Borrower, or (ii) the value of the Collateral which is the subject matter of the Security Agreements;

(xii)

Such Loan will not violate any Applicable Law then in effect;

(xiii)

All of the representations and warranties of Borrower herein are true and correct on and as of such date as though made on and as of such date other than those representations and warranties which relate to a specific date which shall continue to be true as of such date; and

(xiv)

No event or condition has occurred and is continuing, or would result from such Borrowing, which constitutes or which, with notice, lapse of time, or both, would constitute, a breach of any covenant or other term or condition of this Agreement or of any Credit Document.

(b)

The making of Loans without the fulfillment of one or more conditions set forth in Paragraph 18(a) shall not constitute a waiver of any such condition, and the Lender reserves the right to require fulfillment of such condition in connection with any subsequent Loan.

19.

CASH MANAGEMENT SYSTEMS:

(a)

As of the date hereof, Borrower’s cash management accounts (“Cash Management Accounts”) and structure is as set forth on Schedule 19(a) hereto.

(b)

Borrower shall continue to direct its Account Debtors and financial service providers that remit payments by electronic funds transfers to remit all such payments into the Cash Management Accounts consistent with past practice and will not change such instructions without Lender’s prior written consent.

(c)

Each business day, Borrower will cause all funds (other than proceeds of Loans) received from all sources including, without limitation, all account receivable payments, cash sales receipts, credit card payments, and any and all refunds received from any source whatsoever to be deposited into one of the Cash Management Accounts consistent with past practice and concentrated in the Blocked Account.

(d)

On or before February 28, 2015, Borrower shall deliver to Lender an executed deposit account control agreement substantially similar to Wells Fargo’s standard form with respect to the Blocked Account. The deposit account control agreement will provide that Borrower shall not have access to or use of the funds on deposit in the Blocked Account and that amounts on deposit in such account will be swept each business day to an account in the name of Lender.

(e)

On or before February 28, 2015, Borrower shall deliver to Lender an executed deposit account control agreement, substantially similar to Wells Fargo’s standard form with respect to all Borrower accounts at Wells Fargo which receive deposits from Account Debtors and other third parties other than the Blocked Account. Also on or before February 28, 2015, Borrower shall deliver to Lender an executed deposit control agreement, substantially similar to the financial institutions standard form for other accounts that receive funds from third parties, including U.S. Bank. Such deposit account control agreements will permit Borrower to cause amounts on deposit in such account to be swept each business day to the Blocked Account until Lender notifies Wells Fargo that an Event of Default has occurred under this Agreement and instructs Wells Fargo and U.S. Bank to dispose of such funds differently.

(f)

On or before after February 28, 2015, Borrower shall deliver to Lender an executed deposit account control agreement substantially similar to Wells Fargo’s standard form with respect to the Disbursement Account and all other Wells Fargo accounts that Borrower maintains for the purpose of making payments. The deposit account control agreement will provide that amounts on deposit in such accounts may be disbursed at the control of Borrower until Lender notifies Wells Fargo that an Event of Default has occurred under this Agreement and instructs Wells Fargo differently.

(g)

Notwithstanding the foregoing (i) Borrower may for its convenience may maintain accounts at financial institutions without a deposit account control agreement and without complying with Paragraph 19(c) so long as the amount on deposit in such account does not exceed $10,000 at any time; and (ii) Borrower may maintain a balance within US Bank Account Number [*] sufficient to satisfy its obligations under its airline clearing house agreement.

(h)

Borrower shall not maintain any accounts other than the Blocked Account, the Disbursement Account, the Cash Management Accounts and, upon written notice to Lender, such other accounts as Borrower may deem necessary or convenient, which accounts shall be governed by a deposit account control agreement as Lender may require.

(i)

Borrower shall transfer funds from the Disbursement Account into another Cash Management Account solely to make payments necessary for the purpose such Cash Management Account was established.

20.

REPRESENTATIONS:

Borrower represents and warrants, which representations and warranties are deemed to be repeated at the time of each Loan hereunder as though made at such time, as follows:

(a)

Borrower is a corporation or limited liability company existing under the laws of its incorporating or organizing jurisdiction and has all necessary corporate or limited liability company power and authority to own or lease its property and assets and to carry on its business as now being conducted by it, and to authorize, create, execute, deliver and perform all of its obligations under the Credit Documents in accordance with their respective terms. To Borrower’s knowledge, as of December 1, 2014, the shareholders holding 10% or more of the shares of Borrower are listed on Schedule 20(a) attached hereto.

(b)

Borrower has no subsidiaries, joint ventures or partnerships. Except as set forth in Schedule 20(b), Borrower does not (i) sell or lease any goods or real property to any related Person, (ii) provide any services to any related Person, (iii) purchase or lease any goods or real property, or purchase any services from, any related Person, or (d) or contract with or enter into a commitment with any related Person.

(c)

Each of the Credit Documents have been duly authorized, executed and delivered by Borrower and constitute legal, valid and binding obligations of it enforceable against it in accordance with their respective terms. Execution of the Credit Documents will not violate or contravene any Applicable Law nor violate any Material Contracts.

(d)

The financing transactions hereunder (i) do not require any material consent or approval of, registration or filing with, or any other action by, any Governmental Entity, except such as have been obtained or made and are in full force and effect, (ii) will not violate in any material respect any Applicable Laws applicable to Borrower and will not violate the charter, by-laws or other organizational or constitutional documents of Borrower or any order of any Governmental Entity, (iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon Borrower or its assets except to the extent otherwise waived

or released, in writing, in connection with this transaction and approved, in writing, by the Lender, or give rise to a right thereunder to require any payment to be made by Borrower, and (iv) will not result in the creation or imposition of any lien on any asset of Borrower (other than Permitted Liens).

(e)

Borrower owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by Borrower does not infringe upon the rights of any other Person. All trademarks, trade names, copyrights and other intellectual property material to its business is identified in Schedule 20(e) attached hereto.

(f)

Borrower maintains, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar business operating in the same or similar locations.

(g)

Except as disclosed in Schedule 20(g) attached hereto, Borrower is not in default under any of its obligations with any party to a Material Contract and there are no actions, suits, proceedings or judgments, pending or threatened, against or affecting Borrower.

(h)

Borrower is in compliance with all laws, regulations and orders of any Governmental Entity applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property except where the failure to comply could not reasonably be expected to result in a Material Adverse Effect. Borrower has filed all required tax returns and reports that are required to be filed by it in connection with any federal, state and local tax, duty or charge levied, assessed or imposed upon Borrower or its assets. Borrower has paid all taxes which are now due and payable other than taxes that Borrower is contesting in the ordinary course and with respect to which Borrower has made appropriate reserves.

(i)

Borrower has good title to its property, free and clear of all Liens other than Permitted Liens.

(j)

Borrower possesses all Permits necessary to conduct its business properly as identified in Schedule 20(j). Each such Permit is (i) in full force and effect, and (ii) not subject to any dispute. No event has occurred which, with the giving of notice, lapse of time or both, would constitute a default under, or in respect of, any such Permit.

(k)

Schedule 20(k) attached hereto sets forth, as of the date hereof, the commitments of any lender (other than the Lender) for all non-trade debt for borrowed money, and all non-trade debt for borrowed money outstanding, of Borrower, and identifies any and all security interests and liens of such lenders.

(l)

Borrower is not aware of any facts or circumstances that would have an adverse impact on the value of the Collateral. The provisions of this Agreement and the other Credit Documents create legal and valid Liens on all the Collateral in favor of the Lender, and such Liens constitute perfected and continuing Liens on the Collateral and have priority over all other Liens on the Collateral except for Permitted Liens.

(m)

As of the date hereof, both before and after giving effect to (i) the financing transactions to be consummated on the date hereof and (ii) the payment and accrual of all fees, costs and expenses in connection therewith, Borrower is and will be solvent and able to pay all its debts as they mature.

(n)

As of the date hereof, adequate provision has been made for the payment of all Priority Claims and potential Priority Claims, whether or not payable and whether or not disputed.

(o)

All information furnished by or on behalf of Borrower in writing to the Lender in connection with this Agreement or any transaction contemplated hereby, is, when taken as a whole, true and correct and does not omit any fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or reasonably could be expected to have a Material Adverse Effect on the business, assets or prospects of Borrower, which has not been fully and accurately disclosed to the Lender in writing.

(p)

All pension and benefit plans subject to Title IV of ERISA covering pension and benefit plans currently maintained by Borrower are set forth in Schedule 20(p) attached hereto (or as otherwise updated from time to time after the Closing Date by delivery of an amended or revised Schedule 20(p) acceptable to Lender in its discretion). All material obligations of Borrower (including fiduciary, contribution, funding, investment and administrative obligations) required to be performed in connection with the benefit plans and any applicable funding agreements therefore under the terms thereof and applicable statutory and regulatory requirements, have been performed in a timely and proper fashion, except as could not reasonably be expected to have a Material Adverse Effect. Each plan which has a defined benefit provision is fully funded on both a going concern basis, using the same actuarial methods and assumptions as in the most recently filed actuarial report, and on a solvency basis, except where same could not reasonably be anticipated to have a Material Adverse Effect. There have been no improper withdrawals or applications of the assets of the pension and benefit plans and no outstanding disputes concerning the assets and liabilities of the pension or benefit plans, in each case, which would reasonably be expected to result in a material liability to Borrower.

(q)

(i) There are no collective bargaining agreements or other labor contracts covering employees of Borrower except as disclosed on Schedule 20(q); (ii) to the knowledge of Borrower, no union or other labor organization is seeking to organize, or to be recognized as, a collective bargaining unit of employees of Borrower or for any similar purpose except as disclosed on Schedule 20(q), and (iii) there is no pending or (to the best of the knowledge of Borrower) threatened strike, work stoppage, material unfair labor practice claim, or other.

(r)

Borrower is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended. Borrower is not engaged principally, or as one of its important activities, directly or indirectly, in the business of extending credit for the purpose of purchasing or carrying margin stock. None of the proceeds of any of the Loans will be used by Borrower to purchase or carry margin stock. Terms for which meanings are provided in Regulation U of the Board of Governors of the Federal Reserve System or any regulations substituted therefore, as from time to time in effect, are used in this paragraph with such meanings.

(s)

Borrower has no Environmental Permits and is not required to hold or maintain any Environmental Permits by applicable law.

(t)

Borrower is not subject to an Environmental Claim or Environmental Liabilities except as disclosed on Schedule 20(t).

(u)

Reserved.

(v)

Borrower is not in default of any contract which brings revenue in excess of $500,000 annually, or contains a payment or other obligation in excess of $500,000 annually, each such as identified on Schedule 20(v) (each a “Material Contract”). For the avoidance of doubt, EAS Program Contracts shall not be deemed to constitute “Material Contracts”.

(w)

Borrower is in good standing and is not in default under its EAS Program Contracts. The material terms of all EAS Program Contracts are summarized in Schedule 20(w) and all EAS Program Contracts have been previously provided to Borrower.

(x)

As to Eligible Fleet Equipment, Schedule 20(x) accurately identifies (i) the make and model; (ii) the airframe identification number; (iii) the U.S. Registry No.; (iv) the engine or propeller make/model; and (v) the engine or propeller serial number.

(y)

As to each piece of Eligible Fleet Equipment, it (i) is not registered under the laws of any foreign country; (ii) is eligible, and shall remain eligible at all times for registration under the Act; (iii) is based in, and primarily used in, the United States; (iv) will not be used in violation of any law, regulation, ordinance, or policy of insurance affecting the maintenance, use or flight of the Eligible Fleet Equipment; (v) is and will continue to be registered at all times with the FAA in the name of Borrower; and (vi) will be maintained and inspected under Part 121 certificate of the FARs.

The representations and warranties in this Agreement and in any certificates or documents delivered to the Lender shall not merge in or be prejudiced by and shall survive any Loan and shall continue in full force and effect for the Term of this Agreement.

21.

LENDER REPRESENTATIONS:

The Lender represents and warrants as follows:

(a)

The Lender is a corporation existing under the laws of the Province of Ontario and has all necessary corporate power and authority to carry on its business as now being conducted by it, and to authorize, create, execute, deliver and perform all of its obligations under this Agreement.

(b)

This Agreement and each of the documents executed by the Lender in connection with this Agreement has been duly executed and delivered by the Lender and constitutes a legal, valid and binding obligation of the Lender enforceable against it in accordance with its respective terms.

22.

COVENANTS:

(a)

Borrower covenants and agrees with the Lender that:

(i)

It will (A) maintain its existence as a corporation or limited liability company as the case may be; (B) continue to engage primarily in business of the same general character as is currently conducted and refrain from entering into any business substantially different then the business and activities it currently engages in.

(ii)

It will pay its Indebtedness as and when due.

(iii)

Reserved.

(iv)

It will keep and maintain all Collateral and other property material to the conduct of its business in good working order and condition (ordinary wear and tear and casualty events excepted).

(v)

It will obtain and maintain with financially sound and reputable insurance companies (A) insurance against loss, destruction or damage to its properties, including aircraft hull physical damage insurance, and business of the kinds and in the amounts as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations, all of which shall show the Lender as lender loss payee and/or additional insured as applicable; and (b) comprehensive aircraft and third party insurance against public liability and third party property damage of the kinds and in the amounts as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations (but in no event less than $50,000,000) all of which show the Lender as an additional insured. Furthermore, all insurance policies must provide for thirty (30) days written notice to Lender before such policy is altered or canceled.

(vi)

It will comply with all Applicable Laws except where the failure to comply could not reasonably be expected to result in a Material Adverse Effect and shall immediately notify Lender of any failure to so comply.

(vii)

It shall pay or cause to be paid, when due (A) all Priority Claims; and (B) all taxes, assessments and governmental charges or levies (including interest and penalties) imposed upon it or upon its income, sales, capital or profit or any other property belonging to it before any penalty or interest accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums which by law might be a Lien or charge upon any of its assets, provided that no such charge or claim need be paid if and for so long as each of the following conditions continue to be met (“Contested Claims”): (a) such Contested Claim is being diligently contested in good faith so long as Lender is notified of such contest, (b) Borrower establishes an adequate reserve or other appropriate provision for the payment of such Contested Claim and all other contested Claims required by GAAP, (c) any Lien arising from such Contested Claim does not, when added to all amounts secured by all other then Contested Claims, secure amounts in excess of $250,000 in the aggregate as of any date, and (d) no material property would be lost, forfeited or materially damaged as a result of such Contested Claim.

(viii)

Reserved.

(ix)

It shall keep proper books of record and account, in which full and correct entries shall be made of all of its financial transactions and its assets and business in accordance with GAAP.

(x)

It shall promptly cure or cause to be cured any defects in the execution and delivery of any of the Credit Documents or any defects in the validity or enforceability of any of the Security Agreements and at its expense, execute and deliver or cause to be executed and delivered, all such agreements, instruments and other documents as the Lender may consider necessary or desirable for the foregoing purposes.

(xi)

At Borrower’s cost and expense, upon reasonable request of the Lender, execute and deliver to the Lender such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Lender to carry out more effectually the provisions and purposes of the Credit Documents.

(xii)

It shall maintain as current all Permits.

(xiii)

It shall at all times maintain in effect read only online access for Lender to all of Borrower’s financial accounts at such financial institutions that allow such access, including Wells Fargo.

(xiv)

It shall maintain, inspect, service and repair, overhaul and test all Eligible Fleet Equipment in accordance with the FAA approved maintenance program and FAA airworthiness directives.

(xv)

Maintain the airworthiness certificates of its Eligible Fleet Equipment as required under the Act.

(xvi)

It shall maintain all records, logs and other materials required by the FAA to be maintained.

(xvii)

It shall cause all Eligible Fleet Equipment to be duly registered in the name of the Borrower in accordance with the Act and, at Lender’s request, Borrower shall furnish, or cause to be furnished to Lender a copy of any certificate of registration for the Eligible Fleet Equipment verifying that the Eligible Fleet Equipment is properly registered in accordance with this section.

(xviii)

Within thirty (30) days after the Closing Date, it shall cause to be discharged the international registry filing for engine PS0241.

(b)

Borrower covenants and agrees that it shall not, at any time without the prior written consent of the Lender:

(i)

be in default, after any permitted cure period, of any Material Contract at the time of any Loan;

(ii)

(A) permit any change in the Person acting as president and chief executive officer of Borrower except to the extent such position is filled within 180 days thereafter by a Person approved by Borrower’s board of directors and who is reasonably acceptable to Lender, or (B) engage in any business other than as a commercial airline;

(iii)

create, grant, assume or permit to exist any Lien (including Priority Claims) on any of its property other than Permitted Liens;

(iv)

sell, assign, lease, transfer or otherwise dispose of any portion of its assets, other than in the ordinary course of business, and other than Equipment that is worn-out, obsolete or no longer used or useful in Borrower’s business, with all proceeds of any sale thereof applied in Lender’s sole discretion;

(v)

dispose of, acquire or establish any subsidiary;

(vi)

redeem or repurchase any securities issued by it;

(vii)

increase the cash compensation to its executives and officers except as is reasonable, usual and customary for a company in the Borrower’s financial condition;

(viii)

increase in amount or frequency the current payments for management, consulting board of directors or other fees for management or similar services, to any of its directors, officers, shareholders or anyone not at arms-length with it, except as is reasonable, usual and customary for a company in the Borrower’s financial condition, and as approved by the board of directors;

(ix)

reimburse any expenses paid or otherwise incurred by anyone, except to the extent that those expenses were incurred in the ordinary course of business and are reasonable in amount;

(x)

have any place of business or keep or store any material tangible personal property outside of those jurisdictions (or registration districts within such jurisdictions) set forth in Schedule 22(b)(x) attached hereto, (A) except upon 30 days’ written notice to the Lender; and (B) unless Borrower has done or caused to be done all such acts and things and executed and delivered or caused to be executed and delivered all such deeds, transfers, assignments and instruments (including opinions of counsel) as the Lender may reasonably require such that the Lender, shall continue to have a first priority perfected Lien (or hypothec) (whether by way of registration or otherwise and subject only to Permitted Liens) over all of Borrower’s personal property except where the Lender, acting reasonably, determines that the cost of obtaining such perfected security interest over an asset exceeds the benefit to it of obtaining such security interest;

(xi)

amend or terminate any Material Contract other than non-substantial changes made in the ordinary course of business or to make any such contract more favorable to Borrower, or enter into a Material Contract outside of the ordinary course of its business;

(xii)

make any payments or transfer any of its undertaking, properties, rights or assets to any Person without due consideration which in any manner diverts, or results or could result in the diversion of, assets and/or opportunities of Borrower to such other Person;

(xiii)

change its name, or the location of its place of business, if it has only one place of business, or its chief executive office without giving the Lender 30 days prior written notice;

(xiv)

enter into any transaction (whether by way of amalgamation, merger, winding-up, consolidation, reorganization, transfer, sale, lease or otherwise) whereby all or substantially all of its undertaking, properties, rights or assets would become the property of any other Person or entity, or in the case of amalgamation, of the continuing corporation resulting therefrom;

(xv)

permit its insurance coverage required by Lender to lapse at any time after the expiration of any grace or cure periods provided by the terms of such insurance coverage;

(xvi)

make a payment to any shareholder or member in respect of any shareholder or member loan owing to such shareholder or member other than as expressly permitted by the terms of a subordination agreement entered into in favor of the Lender in respect of such loan or loans;

(xvii)

make a loan to or investments in any Person, or give guarantees on behalf of any Person other than in the ordinary course (for the avoidance of doubt, this clause does not restrict Borrower from extending trade credit in the ordinary course);

(xviii)

incur or repay any Indebtedness of itself or a related Person, or enter into any direct or indirect indemnities or guarantees, other than pursuant to or as otherwise expressly permitted under this Agreement, or any subordination agreement in favor of Lender in respect of such indebtedness, except for (A) arm’s length trade debts incurred and paid in the ordinary course and as such become due, (B) obligations or other liabilities incurred in the ordinary course of Borrower’s business and paid in the ordinary course as such become due, (C) secured indebtedness, purchase money indebtedness and capitalized leases not exceeding $250,000 in aggregate at any time, (D) swap agreements entered into in the ordinary course for bona fide hedging purposes and not for speculation, (E) endorsements for collection or deposit in the ordinary course (G) contingent obligations arising in connection with letters of credit, (H) customary, unsecured indemnification obligations in favor of purchasers in connection with dispositions of assets, and (I) other unsecured, contingent obligations not exceeding $250,000 in aggregate at any time (collectively, the “Permitted Debt”);

(xix)

voluntarily prepay any Indebtedness more than 10 days prior to the stated maturity date thereof other than (i) the Obligations and (ii) Indebtedness to trade creditors where the prepayment shall result in a discount on the amount due or other benefit deemed material by it;

(xx)

make or incur any expenditures for real estate, plant, machinery, Equipment, or other similar expenditure (including all renewals, improvements and replacements thereto, and all obligations under any lease of any of the foregoing) that would be capitalized on the balance sheet of Borrower in accordance with GAAP (collectively, “Capital Expenditures”) other than (x) Capital Expenditures for flight equipment, rotable parts and for the purpose of maintaining Equipment in good operating condition in an

aggregate amount not to exceed the forecast or budget for such Fiscal Year previously approved by Lender in its discretion, and (y) Capital Expenditures in any Fiscal Year in an amount not to exceed ten percent (10%) over the forecast or budget for such Fiscal Year previously approved by Lender in its discretion, provided, however, Borrower may incur capitalized maintenance costs to the extent it requires an urgent and necessary repair to Eligible Fleet Equipment, and (z) other Capital Expenditures acceptable to Lender. For the avoidance of doubt, costs associated with the preparation of aircraft, engines and propellers for sale will not be considered Capital Expenditures;

(xxi)

Purchase or otherwise acquire: (a) all or substantially all of the assets of any Person or the assets comprising any line of business or business unit or division, (b) any partnership, joint venture or limited liability company interest in or with any Person, or (c) the Equity Interests or securities of, create, form or invest in any Person (including a Subsidiary), or hold beneficially evidences of Indebtedness of, or make any investment or acquire any interest in, or make any advance or loan to, or assume any liability on behalf of, any other Person other than (i) as expressly provided in this Agreement; and (ii) short term investments of excess working capital in one or more of the following so long as no Facility A Loans or Facility B Loans are then outstanding: (A) investments (of one year or less) in direct or guaranteed obligations of the United States, or any agencies thereof; and (B) investments (of one year or less) in certificates of deposit of banks or trust companies organized under the laws of the United States or any jurisdiction thereof, provided that such banks or trust companies are insured by the Federal Deposit Insurance Corporation.

(xxii)

Become or remain liable as a guarantor or other contingent obligor, for the obligations of any lessee or user under any lease (other than a capitalized lease) of real or personal property if the highest annual rent and other amounts (exclusive or property taxes, property and liability insurance premiums and maintenance costs) payable by the lessee or user thereunder when added to the aggregate of all such rents and other amounts in respect of which any Borrower is contingently liable, exceeds $100,000 in any Fiscal Year.

(xxiii)

As to Eligible Fleet Equipment: (A) make no alterations, additions, subtractions, upgrades or improvements which reduce the fair market value or operational utility of the Eligible Fleet Equipment without Lender’s prior written consent, (B) operate, use or locate the Eligible Fleet Equipment outside of the United States of America and Canada; or (C) register any Eligible Fleet Equipment under the laws of any country other than the United States of America and the Cape Town Treaty.

(xxiv)

Permit or suffer the Fixed Charge Coverage Ratio determined as of each date set forth below for the Test Period then ending on such date to be less than the ratio set forth opposite such date:


Date		Ratio
March 31, 2015		0.52 to 1.00
June 30, 2015		0.76 to 1.00
September 30, 2015		0.66 to 1.00
December 31, 2015		0.87 to 1.00
March 31, 2016 and the last day of each calendar quarter thereafter		1.10 to 1.00

provided, however, in each case when the Fixed Charge Coverage Ratio is less than the required ratio as of the applicable date set forth in the above schedule, Borrower shall have an additional ten (10) business days after the date compliance with this paragraph must be reported to provide to Lender’s satisfaction written evidence of receipt of a capital contribution, sufficient if added to increase Net Income, to meet the requirements of this paragraph upon recalculation of the Fixed Charge Coverage Ratio as if such capital contribution were made on the last day prior to the end of the Test Period.

Borrower shall notify Lender of any changes or revisions to schedules attached hereto and incorporated into covenants and representations herein in writing within three (3) business days after such change or revision.

23.

BORROWING BASE REPORTS; REPORTS:

Borrower shall, in a form and manner prescribed by the Lender (which may include by fax and/or e-mail), deliver to the Lender the following, signed by a senior officer of Borrower:

(a)

Prior to the time of each requested Facility A Loan in connection with submission of the Facility A Weekly Borrowing Base Report, but no less than weekly whether or not Borrower makes a funding request under Facility A Loan, Borrower shall provide, as of the end of the preceding week, a summary of all of Borrower’s Eligible Accounts Receivable (as measured monthly and reconciled weekly), Eligible Parts Inventory (as measured monthly), details regarding any contras, deductions, holdbacks, setoffs and/or recoupments asserted or which may be asserted by an Account Debtor, details of any then existing or potential Priority Claims and/or then existing or potential Statutory Encumbrances, the amount of the requested Facility A Loan, and any other information that may be reasonably required by the Lender.

(b)

Prior to the time of each requested Facility B Loan in connection with submission of the Facility B Weekly Borrowing Base Report, but no less than weekly whether or not Borrower makes a funding request under Facility B Loan, Borrower shall provide a listing of all of Borrower’s Eligible Fleet Equipment, a list of all aircraft, engines and propellers out to third parties for repair or maintenance, details of any then existing or potential Priority Claims and/or then existing or potential Statutory Encumbrances, the amount of the requested Facility B Loan Borrowing to be made hereunder for the week, and any other information that may be reasonably required by the Lender.

(c)

Weekly:

a 13 week cash flow projection;

ii.

an aged accounts receivable reconciliation schedule;

iii.

list of all Priority Claims;

(d)

Monthly, by the last Business Day of each calendar month in respect of the preceding month:

A plane log report that identifies what aircraft flew during such month and a report that identifies engines that out of Borrower’s possession pending repair;

ii.

an aged accounts receivable schedule, aged accounts payable schedule, detailed inventory schedule, Priority Claims listing, summary trial balance and outstanding letters of credit in which the Borrower is the beneficiary or obligor;

iii.

internally prepared preliminary financial statements for the preceding month and internally prepared financial statements for the year to date, which shall include an income statement, balance sheet and cash flow statement;

iv.

a list of bank account balances; and

monthly operating statistics report;

(e)

Quarterly, by the 45^th day after the end of each calendar quarter, a quarterly compliance certificate;

(f)

Annually, no later than 45 days after the start of each fiscal year, financial and business projections for such fiscal year;

(g)

Annually, within one hundred and twenty (120) days after fiscal year end, audited financial statements of Borrower for such fiscal year;

(h)

Such additional financial information with respect to Borrower as and when requested by the Lender;

(i)

Within two (2) Business Days of receipt of notice of any kind, particulars of any occurrence that constitutes an Event of Default hereunder or of any action, suit or proceeding, pending or to Borrower’s knowledge threatened against Borrower, for monetary damages in excess of $500,000, including, without limitation, any investigation or citation related to an Environmental Claim or Environmental Liabilities;

(j)

Within two (2) business days of receipt of any notice of default, warning or other notice of any kind relating to Borrower’s qualification or performance under the Essential Air Service Program;

(k)

Within two (2) business days of filing, all reports and other documents filed with the Securities Exchange Commission; and

(l)

Notice of expiration of any EAS Program Contracts prior to thirty (30) days before the expiration thereof.

24.

FIELD EXAMINATIONS/APPRAISALS:

(a)

Borrower acknowledges that the Lender and its examiners shall be permitted to conduct periodic field examinations of the Collateral and operations of Borrower (not to exceed four (4) in any calendar year prior to a Default or Event of Default that is continuing and more frequently as the Lender may determine in its sole discretion thereafter).

(b)

Borrower further acknowledges that the Lender shall be permitted to obtain inventory and equipment valuations not to exceed two (2) in any calendar year prior to a Default or Event of Default which is continuing and more frequently as the Lender may determine in its sole discretion thereafter; provided that the valuation shall use industry standard valuation methodology and assumptions and Lender makes copies of such valuations available to Borrower.

25.

EXPENSES:

(a)

Borrower agrees to pay on demand all reasonable legal and other professional fees and disbursements and all expenses in respect of the Obligations, the preparation and issuance of the Credit Documents, financing filings and searches, the conduct by the Lender of its due diligence, ongoing monitoring by the Lender of the Obligations, the enforcement and preservation of the Lender’s rights and remedies, discharge of the Security Agreements, all appraisals and field examinations contemplated in this Agreement, insurance consultation and similar fees and all other fees and disbursements of the Lender, whether or not any funds are advanced under the Loans, including, but not limited to, reasonable attorneys’ fees incurred by the Lender in connection with the enforcement of the Credit Documents.

(b)

Borrower shall indemnify and hold the Lender and each of its officers, directors, employees and agents (each an “Indemnified Person”) harmless from, and shall pay to such Indemnified Person on demand any reasonable amounts required to compensate the Indemnified Person for, any claim or loss suffered by, imposed on, or asserted against, the Indemnified Person as a result of, connected with or arising out of (i) conducting a due diligence investigation of the operations and undertakings of Borrower, (ii) the preparation, execution and delivery of, preservation of rights under, enforcement of, or refinancing, renegotiation or restructuring of, the Credit Documents and any related amendment, waiver or consent; (iii) fees incurred in

connection with obtaining any advice of counsel as to the rights and duties of the Lender with respect to the administration of the Loan, the Credit Documents or any transaction contemplated under the Credit Documents; (iv) a default by Borrower hereunder and any enforcement proceedings relating to any of the Credit Documents; (v) any proceedings brought against the Indemnified Person due to the Lender entering into any of the Credit Documents, performing its obligations under the Credit Documents, providing any Loan or any use of any Loan by Borrower; provided that Borrower shall have no obligation to indemnify any Indemnified Person for any of the foregoing to the extent determined by a judgment of a court of competent jurisdiction to have arisen from such Indemnified Person’s gross negligence, willful misconduct or fraud or default by the Lender or such other Indemnified Person under any of the Credit Documents or breach of Applicable Law by the Lender or such other Indemnified Person, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY OR SOLE NEGLIGENCE OF THE INDEMNITEE.

(c)

The provisions of this Paragraph 25 shall survive the termination of this Agreement, the repayment of all amounts owing hereunder and the cancellation of the Loans.

26.

EVENTS OF DEFAULT:

Without limiting any other rights of the Lender under this Agreement, if any one or more of the following events (herein an “Event of Default”) has occurred and is continuing:

(a)

Any representation or warranty in any of the Credit Documents or additional reports or information provided to Lender by Borrower or any related party is incorrect in any material respect when made or reaffirmed;

(b)

Borrower fails to pay when due, by acceleration or otherwise, any payment of interest, principal, fees, commissions or other obligations payable to the Lender and such failure continues for two Business Days;

(c)

Borrower fails to observe, comply with or perform any covenant, condition or agreement herein or in any of the other Credit Documents (exclusive of those defaults covered by the other clauses of this Section 26) and fails to cure such default by the date that is 10 Business Days after the earlier of the date: (i) Lender notifies Borrower of such default or (ii) on which Borrower has knowledge of such default; provided that such ten-day grace period shall not apply to: (A) a breach of any covenant that, in Lender’s good faith judgment, cannot be cured: (B) any failure to maintain insurance in accordance with this Agreement or any other Credit Document or to permit inspection by Lender, or its agent, of the Collateral or of the books and records of Borrower in accordance with this Agreement; (C) any breach of Paragraph 23(a) within 2 Business Days; (D) a breach or default of any other Credit Documents if a period of cure is expressly provided for in such other Credit Document with respect to a breach or default under such other Credit Document; or (E) any breach if, within the 3 calendar months immediately preceding the occurrence of such current breach, Borrower has previously breached the same provision of this Agreement or any other applicable Credit Document;

(d)

a petition, case or proceeding under the bankruptcy laws of the United States, or similar laws of any foreign jurisdiction now or hereafter in effect or under any insolvency, arrangement, reorganization, moratorium, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed or commenced against Borrower or all or any part of its properties;

(e)

within one (1) Business Day of receipt, Borrower does not deposit funds from any source (other than Loans) into the Blocked Account;

(f)

Borrower defaults under the terms of any other Indebtedness or lease that in either case, individually or in the aggregate, involved Indebtedness (y) in excess of $250,000, and (z) which is not cured within 30 days after receipt of notice of the default, and such default gives any creditor or lessor thereof the right to accelerate the maturity of any such Indebtedness or lease payments;

(g)

Borrower defaults under any of the terms of its articles of incorporation, bylaws, shareholders agreements, SEC requirements, or other organizational document;

(h)

a counterparty to a Material Contract takes action to terminate or to accelerate Borrower’s obligations under such Material Contract due to Borrower’s default thereunder;

(i)

the commencement of any foreclosure proceedings, proceedings in aid of execution, attachment actions, or levies by any Person against, or the filing by any taxing authority of a Lien against any of the Collateral or any property securing the repayment of any of the Obligations which have not been vacated, discharged or stayed within 10 Business Days after the commencement thereof;

(j)

the filing of any Lien against the Collateral or any part thereof (exclusive of Permitted Liens) which is not removed or for which adequate provision is not made to the satisfaction of Lender within a period of 10 Business Days thereafter;

(k)

the abandonment by Borrower of any Eligible Fleet Equipment unless Borrower simultaneously makes a payment in an amount equal to 90% of the Forced Liquidation Value of such Eligible Fleet Equipment;

(l)

the occurrence of an Environmental Claim or Environmental Liabilities;

(m)

Borrower defaults under any Material Contract and fails to cure or obtain a waiver of such default within any applicable cure period;

(n)

except with respect to judgments described on Schedule 20(g) attached hereto, any uninsured judgment for the payment of money is rendered against Borrower in excess of $250,000 and remains undischarged or unvacated for a period in excess of thirty (30) days, or execution thereof shall at any time not be effectively stayed;

(o)

a Material Adverse Effect shall have occurred since the date of this Agreement;

(p)

any audited financial statements of Borrower are materially qualified in any respect by Borrower’s independent auditors, except such qualifications as stated in the audited financial statements delivered to Lender prior to the Closing Date, which such qualifications may continue throughout the term of the Loans;

(q)

a receiver is appointed over all or substantially all property of Borrower or any judgment or order or process of any court becomes enforceable against Borrower or all or substantially all property of Borrower or any creditor takes possession of all or substantially all property of Borrower;

(r)

Borrower makes a payment to a related party in respect of any loan owing to such, which is not permitted by the terms of this Agreement or a subordination agreement in favor of Lender in respect of such loan;

(s)

any course of action is undertaken that would result in its reorganization, amalgamation or merger with another entity or the transfer of all or substantially all of its assets;

(t)

Borrower defaults under any regulation, requirement or provision or fails to qualify to participate in the EAS Program; refuses to participate thereunder or receives a notice of default related to the EAS Program;

(u)

any Security Agreement is or becomes illegal, invalid, prohibited or unenforceable and/or ceases to rank in the priority contemplated herein against the property charged thereunder; or

(v)

the occurrence of (i) an ERISA Event and such reportable event is not corrected and such determination is not revoked within sixty (60) days after notice thereof has been given to the plan administrator of such Pension Plan (without limiting any of Lender’s other rights or remedies hereunder), or (ii) the termination or the institution of proceedings by the PBGC to terminate any such Pension Plan, or (iii) the appointment of a trustee by the appropriate United States District Court to administer any such Pension Plan, or (iv) the reorganization (within the meaning of Section 4241 of ER1SA) or insolvency (within the meaning of Section 4245 of ERISA) of any “multiemployer plan” as defined in Sections 3(37) and 4001(a)(3) of ERISA (“Multiemployer Plan”), or receipt of notice from any Multiemployer Plan that it is in reorganization or insolvency, or the complete or partial withdrawal by Borrower from any Multiemployer Plan, which in the case of any of the foregoing, could reasonably be expected to have a Material Adverse Effect;

Then, in such event, the Lender’s obligation to make Loans to Borrower under this Agreement shall immediately terminate and the Lender may, by written notice to Borrower, declare the Obligations outstanding hereunder to be immediately due and payable. Upon receipt of such written notice, Borrower shall immediately pay to the Lender all Obligations outstanding under this Agreement and all other obligations of Borrower to the Lender in connection therewith. Lender may offset and apply to all or any part of the Obligations all property of any nature whatsoever of Borrower in the possession or control of Lender or its related persons.

Upon a declaration that the Obligations outstanding hereunder are immediately due and payable pursuant to this Paragraph 26, the Lender may exercise any and all rights under Applicable Laws and the Credit Documents, exercise its rights pursuant to any IDERA delivered to Lender pursuant to Paragraph 35, commence such legal action or proceedings as the Lender in its sole discretion deems expedient, including the commencement of enforcement proceedings under the Credit Documents, all without any additional notice, presentation, demand, protest, notice of dishonor, entering into or possession of any property or assets, or any other action or notice, all of which are expressly waived by Borrower.

The rights and remedies of the Lender under the Credit Documents are cumulative and are in addition to, and not in substitution for, any other rights or remedies.

Any termination of this Agreement shall not affect any rights of any party or any obligation of any party to the other, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into, rights created or Obligations incurred prior to such termination have been fully disposed of, concluded or liquidated. The security interest, other Liens and rights granted to Lender hereunder and under the Credit Documents shall continue in full force and effect, notwithstanding the termination of this Agreement or the fact that no Loans are outstanding until all of the Obligations (other than unasserted claims for indemnification) have been paid in full.

27.

TAXES:

(a)

Any and all payments by Borrower hereunder or any related credit document shall be made free and clear of any and all present or future taxes, levies, imposts, deductions, charges or withholdings (including, specifically, any withholding tax applicable to interest or similar payments) and all liabilities (including, without limitation, all interest and penalties) with respect thereto, excluding in the case of the Lender any taxes measured by its gross or net income and any US federal withholding Taxes imposed under FATCA, except for income or franchise taxes imposed under State law on the Lender’s income derived from the Loans or under this Agreement or its activity otherwise associated therewith (all such non-excluded taxes, collectively, the “Applicable Taxes”).

(b)

If any Applicable Taxes shall be required by law to be deducted from or in respect of any sum payable hereunder or any related Credit Document to the Lender:

(i)

the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Paragraph 27) the Lender receives an amount equal to the sum it would have received had no such deductions been required;

(ii)

Borrower shall make such deductions;

(iii)

Borrower shall pay on behalf of the Lender the full amount deducted to the relevant authority as and when required by Applicable Laws; and

(iv)

Borrower shall deliver to the Lender evidence of such payment.

(c)

Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies of the United States, Canada or any political subdivision thereof and all liabilities (including, without limitation, all interest and penalties) with respect thereto, in each case arising from any payment made under this Agreement, any Credit Document or other agreement related hereto or thereto or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other agreement related hereto (collectively, “Other Taxes”).

(d)

Borrower shall indemnify the Lender, whether directly or by Lender’s draw upon the Loans, for the full amount of Applicable Taxes and Other Taxes (including any Applicable Taxes and Other Taxes arising in respect of any additional payment required under Paragraph (b) of this Paragraph 27) paid by the Lender and any liability (including for penalties, interest and expenses) with respect thereto, whether or not such Applicable Taxes or Other Taxes were correctly or legally asserted; provided, that, if Borrower reasonably believes that the Applicable Taxes or Other Taxes were not correctly or legally asserted, the Lender will use reasonable commercial efforts, at the expense of Borrower to cooperate with Borrower to obtain a refund of such Applicable Taxes or Other Taxes. This indemnification shall be made within thirty (30) days from the date the Lender makes written demand therefor.

(e)

Within thirty (30) days after the date of any payment of Applicable Taxes or Other Taxes by Borrower, Borrower shall furnish to the Lender, the original or a certified copy of a receipt or other satisfactory proof evidencing payment thereof.

(f)

Notwithstanding the foregoing, if a payment made to the Lender under any Credit Document would be subject to US federal withholding Tax imposed under FATCA if the Lender were to fail to comply with the applicable reporting requirements of FATCA, the Lender shall deliver to the Borrower at the time or times prescribed by law and at such time or times reasonably requested by the Borrower such documentation prescribed by applicable law and such additional documentation reasonably requested by the Borrower as may be necessary for the Borrower to comply with their obligations under FATCA and to determine the amount, if any, to deduct and withhold from such payment.

28.

INTERNAL REVENUE SERVICE FORMS:

(a)

Borrower shall contemporaneously with the execution of this Agreement deliver to Lender a properly completed and duly executed original of Internal Revenue Service Form W-9, or any subsequent versions thereof or successors thereto.

(b)

Lender shall deliver to Borrower contemporaneously with the execution of this Agreement a properly completed and duly executed original of Internal Revenue Service Form W-8 BEN, or any subsequent versions thereof or successors thereto.

29.

RESERVED.

30.

ONE LOAN; MARSHALING; SURVIVAL

(a)

All Loans under this Agreement or under any other Credit Document constitute one loan and all of the Obligations constitute one obligation. The Loans and all other advances or extensions of credit to, or for the benefit of, Borrower under this Agreement or any other Credit Document and all other Obligations are made on the security of all of the Collateral. The limits on outstanding Loans against any Loan are not intended and shall not be deemed to limit in any way Lender’s security interest in, or other Liens on, any Collateral.

(b)

Upon the occurrence and during the continuance of any Event of Default, Lender may enforce this Agreement and the other Credit Documents independently of any other remedy or security the Lender at any time may have or hold in connection with the Loans, and it shall not be necessary for the Lender to marshal assets or proceed against any Collateral on any order or to proceed upon or against or exhaust any security or remedy before proceeding to enforce this Agreement and the other Credit Documents.

(c)

The Lender’s rights under the Credit Documents shall be reinstated and revived, and the enforceability of this Agreement and the other Credit Documents shall continue, with respect to any amount at any time paid on account of the Loan which thereafter shall be required to be restored or returned by the Lender, all as though such amount had not been paid. The rights of the Lender created or granted herein and the enforceability of this Agreement and the other Credit Documents at all times shall remain effective to cover the full amount of the Loan even though any security therefor, may be or hereafter may become invalid or otherwise unenforceable.

31.

USURY CEILING:

At no time shall any provision of this Agreement or other Credit Documents obligate Borrower to make any payment of interest or other amount payable to the Lender in an amount or calculated in excess of the highest applicable usury ceiling (the “Maximum Rate”). In the event any interest is charged or received by the Lender in excess of the Maximum Rate, Borrower acknowledges that the amount or rate shall be deemed to have been adjusted with

retroactive effect to the maximum amount or rate of interest, as the case may be, so as not to be so prohibited by law or result in a receipt by the Lender of interest at a criminal rate, the adjustment shall be effected, to the extent necessary, as follows: (i) firstly, by reducing the amount or rate of interest required to be paid to the Lender under this Agreement or the other Credit Documents, and (ii) thereafter, by reducing any fees, commissions, premiums and other amounts required to be paid to the Lender that would constitute interest.

32.

CONSENT TO JURISDICTION:

Borrower and the Lender hereby irrevocably submit, as explicitly requested and elected by Borrower, to the exclusive jurisdiction of any United States Federal Court or New York state court sitting in New York County (Manhattan), New York, in any action or proceeding arising out of or relating to this Agreement or any of the Credit Documents and Borrower and Lender hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in any such United States Federal Court or New York state court. Each Party irrevocably consents to the service of any and all process in any such action or proceeding brought in any court in or of the State of New York by the delivery of copies of such process to it at the applicable addresses specified in Paragraph 34(d) or by certified mail directed to such address or such other address as may be designated by it in a notice to the other parties that complies as to delivery with the terms of Paragraph 34(d). Nothing in this Paragraph 32 shall affect the right of the Lender to serve process in any other manner permitted by law or limit the right of the Lender to bring any such action or proceeding against Borrower or any of its property in the courts with subject matter jurisdiction of any other jurisdiction. Borrower irrevocably waives any objection to the laying of venue of any such suit or proceeding in the above described courts and specifically represents and warrants that such jurisdiction has been chosen at the request of Borrower with full knowledge of my increased expense and inconvenience thereof.

33.

LAW OF NEW YORK:

This Agreement and, except where otherwise expressly specified therein to be governed by local law, the other Credit Documents shall be governed by and construed and enforced in accordance with the laws of the State of New York (without regard to its conflict of laws provisions). Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Laws, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Laws, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

34.

GENERAL:

(a)

Reserved

(b)

The Security Agreements contain covenants, representations, warranties and events of default to which Borrower shall be bound, in addition to any covenants, representations, warranties and events of default herein contained.

(c)

The terms and conditions of this Agreement shall not be merged in, and shall survive, the execution of the Credit Documents. In the event of any conflict or inconsistency between any provision of this Agreement and any of the other Credit Documents, the provisions of this Agreement shall govern and prevail.

(d)

All notices, requests, demands or other communications by the terms hereof required or permitted to be given by one party to another shall be given in writing by personal delivery or by facsimile transmission addressed to such other party or delivered to such other party as follows:

(i)

to Borrower at:

Great Lakes Aviation, Ltd.

1022 Airport Parkway

Cheyenne, WY 82001

Attention: Michael Matthews, Vice President and Chief Financial Officer

Fax: (307) 432-7001

(ii)

To the Lender at:

Suite 4620, Bay Wellington Tower

Brookfield Place

P.O. Box 792

181 Bay Street

Toronto, ON M5J 2T3

Attention: COO

Facsimile: 416-941-9876

or at such other address or facsimile number as may be given by any of them to the others in writing from time to time and such notices, requests, demands or other communications shall be deemed to have been received when delivered, or, if sent by facsimile transmission, on the date of transmission unless sent on a day that is not a Business Day or after 5:00 p.m. (local time of the recipient) on a Business Day, in which case it shall be deemed to have been received on the next Business Day following the day of such transmission.

(e)

Lender may, in its discretion, elect, from time to time, to receive certain information, including reports, otherwise required by the terms of this Agreement or the other Credit Documents (‘Reports”) from Borrower via electronic mail transmission (“e-mail”). Lender may designate from time to time its e-mail address to Borrower (the “Lender E-mail Address”). All e-mail transmissions of Reports from Borrower shall contain the information as specified in this Agreement and shall be formatted or displayed in an easily readable format. Borrower will be solely responsible for the confidentiality of the contents of e-mail transmissions during transmission to the Lender E-Mail Address. Borrower will be responsible for the accuracy of all information provided to Lender via e-mail transmission to the Lender E-mail Address, and any information so received by

Lender will be deemed to have been submitted by and received from Borrower. In the event of a failure of the transmission of the Reports, it is the responsibility of Borrower to transmit the contents of any pending transmission to Lender using an alternative method which is timely and in accordance with this Agreement. Borrower agrees that, by sending Lender the Reports via e-mail transmission, Borrower is certifying the truthfulness and accuracy in all material respects of the Reports submitted each and every time Borrower sends Lender the Reports. Borrower further agrees that, on each occasion when Borrower send Lender e-mail transmission containing Reports, Borrower is warranting and representing to Lender the truthfulness and accuracy in all material respects of the representations and warranties relevant to that Report set forth in the relevant Credit Document. Borrower consents to and represents that it is its intent that by Borrower’s insertion of Borrower’s name in the subject line of the transmitting e-mail, or on the Reports (including the header and/or the certification line), Borrower intends such to constitute a legally binding and enforceable signature of Borrower, and in all aspects the legal equivalent of Borrower’s handwritten signature. Lender acknowledges and agrees that has received and will receive material non-public information concerning Borrower and agrees to use, and to cause all other persons to whom it delivers any such information to use, such information in compliance with all relevant policies, procedures and applicable requirements of law (including United States federal and state securities laws and regulations.

(f)

Assignment/Participations.

(i)

The benefit of this Agreement may not be assigned by Borrower.

(ii)

With the prior written consent of Borrower (not to be unreasonably withheld or delayed) Lender may, at any time and at its expense, assign the whole or any part of its rights and obligations pursuant to this Agreement or any of the Security Agreements or other Credit Documents to any Person, provided that Borrower’s consent to any such assignment shall not be required at any time that an Event of Default has occurred and remains outstanding. Borrower agrees, at the expense of the Lender (including Borrower’s reasonable legal fees and expenses) to enter into all such documents and assurances as may be necessary to facilitate same.

(iii)

The Lender may disclose to potential or actual participants confidential information regarding the Borrower (including, any such information provided by the Borrower to the Lender); provided that such potential or actual participants agree to keep such confidential information confidential and use it solely for evaluation of an assignment or the administration of this Agreement and the other Credit Documents and provided further that Borrower will be a third party beneficiary of such agreement. The Lender shall not be liable for any disclosure of confidential information made pursuant to this Paragraph 34(f).

(iv)

Lender, in the ordinary course of its business and in accordance with applicable law, may at any time after the Closing Date, sell to one or more lenders or other entities (“Participants”) participating interests in the Loans, the Loan Collateral or other security provided to Lender, or any other interests of Lender under this Agreement or the other Credit Documents.

(g)

Reserved.

(h)

Time shall be in all respects of the essence hereof.

(i)

The Lender will not be considered to have waived compliance with or amended any part of this Agreement or any obligations of Borrower hereunder or under any other document unless such waiver or amendment is specifically set out in writing. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. The Lender shall not be deemed to have waived compliance with any obligation of Borrower simply because it does not exercise any of its rights or remedies immediately upon the occurrence of a breach thereof.

(j)

No representation or warranty or other statement made by the Lender concerning the Obligations shall be binding on the Lender unless made by it herein or in writing as a specific amendment to this Agreement.

(k)

The Lender’s records constitute, in the absence of manifest error, conclusive evidence of the indebtedness of Borrower to the Lender.

(l)

All financial or accounting determinations, reports and statements provided for in this Agreement except where otherwise expressly noted shall be made or prepared in accordance with GAAP applied in a consistent manner.

(m)

Borrower consents to the obtaining from any credit reporting agency or from any Person or entity of such information as the Lender may require at any time.

(n)

This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery by facsimile or by electronic transmission in portable document format (PDF) of an executed counterpart of this Agreement is as effective as delivery of an originally executed counterpart of this Agreement.

35.

COMPLIANCE WITH CAPE TOWN TREATY; RECORDATION WITH THE INTERNATIONAL REGISTRY. Without limiting any other terms or conditions of this Agreement, Borrower agrees as follows, all of which shall be undertaken at Borrower’s sole expense:

(a)

If not completed previously, prior to the closing and funding of any loan hereunder, Borrower shall register and be approved as a “Transacting User Entity” with the International Registry.

(b)

Prior to the closing and funding of any loan hereunder, Borrower shall take any and all such action, and shall execute and deliver such instruments, documents and certificates, as Lender may require in order to accurately register and timely record the respective interests of Borrower and Lender in the Eligible Fleet Equipment with the International Registry pursuant to the Cape Town Treaty, such interests to be searchable in the International Registry to the satisfaction of the Lender, and with the FAA pursuant to the Act, including, without limitation, providing such consents (and does hereby consent) as may be required to permit Lender to give effect to the timely registration and recordation with the International Registry of the respective interests of Borrower and Lender in the Eligible Fleet Equipment.

(c)

Upon Lender’s request, Borrower shall execute and deliver to Lender a fully completed and originally executed Irrevocable De-Registration and Export Request Authorization (“IDERA”), in the form acceptable to Lender in its sole and absolute discretion, which lender may file with the FAA upon an Event of Default.

(d)

Borrower shall take any and all such action, and shall execute and deliver such instruments, documents and certificates, and hereby consents to any applicable International Registry registrations as Lender may require in order to maintain the registration and recordation of the respective interests of Borrower and Lender in the Equipment with the International Registry pursuant to the Cape Town Treaty and with the FAA pursuant to the Act.

35.

ORAL AGREEMENTS.

THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

36.

RELEASE.

BORROWER ON BEHALF OF ITSELF AND ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, AGENTS AND ASSIGNS HEREBY WAIVES, DISCHARGES AND FOREVER RELEASES LENDER, LENDER’S EMPLOYEES, OFFICERS, DIRECTORS, AFFILIATES, ATTORNEYS, STOCKHOLDERS AND SUCCESSORS AND ASSIGNS, FROM AND OF ANY AND ALL CLAIMS, CAUSES OF ACTION, DEFENSES, COUNTERCLAIMS OR OFFSETS AND/OR ALLEGATIONS BORROWER MAY HAVE OR MAY HAVE MADE OR WHICH ARE BASED ON FACTS OR CIRCUMSTANCES ARISING AT ANY TIME UP THROUGH AND INCLUDING THE DATE OF THIS AGREEMENT, WHETHER KNOWN OR UNKNOWN, AGAINST ANY OR ALL OF LENDER, LENDER’S EMPLOYEES, OFFICERS, DIRECTORS, AFFILIATES, ATTORNEYS, SHAREHOLDERS AND SUCCESSORS AND ASSIGNS.

37.

WAIVER OF JURY TRIAL.

BORROWER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY AND HAS CONSULTED WITH COUNSEL OF ITS CHOICE, AND HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER CREDIT DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

The undersigned hereby acknowledge and agree to the foregoing as of the date first written above.


“BORROWER”

Great Lakes Aviation, Ltd

By:		/s/ Michael O. Matthews
Its:		Chief Financial Officer


*LENDER:* CALLIDUS CAPITAL CORPORATION

By:		/s/ David Reese

Its:

By:		/s/ Jim Riley

Its:

[Signature Page to Loan Agreement]

SCHEDULES


Schedule 18(a)(i):		Secured Indebtedness Paid at Closing
Schedule 19(d):		Cash Management Accounts
Schedule 20(a):		Significant Shareholders
Schedule 20(b):		Related Party Transactions
Schedule 20(e):		Intellectual Property
Schedule 20(g):		Defaults and Judgments
Schedule 20(j):		Permits
Schedule 20(k):		Permitted Debt and Permitted Liens
Schedule 20(p):		ERISA Matters
Schedule 20(q):		Collective Bargaining Agreements
Schedule 20(t):		Environmental Disclosures
Schedule 20(v):		Material Contracts
Schedule 20(w):		EAS Program Contracts
Schedule 20(x):		Eligible Fleet Equipment
Schedule 22(b)(x):		Collateral Locations

Exhibit 10.2

AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS

AND SPARE PARTS

MORTGAGE AND SECURITY AGREEMENT

dated as of December 22, 2014

made by

GREAT LAKES AVIATION, LTD.,

as Great Lakes

in favor of

CALLIDUS CAPITAL CORPORATION,

as Lender

TABLE OF CONTENTS


		Page
ARTICLE 1 DEFINITIONS			5
Section 1.01	Definitions		5

ARTICLE 2 COVENANTS OF GREAT LAKES			9
Section 2.01	Possession, Operation and Use, Maintenance and Registration		9
Section 2.02	Replacement of Parts; Alterations, Modifications and Additions		11
Section 2.03	Reserved		12
Section 2.04	Reserved		12
Section 2.05	Other Representations, Warranties and Covenants		12
Section 2.06	Pledged Spare Parts		15

ARTICLE 3 RESERVED			17

ARTICLE 4 REMEDIES			17
Section 4.01	Event of Default		17
Section 4.02	Remedies with Respect to Collateral		17
Section 4.03	Waiver of Appraisement, Etc.		20
Section 4.04	Reserved		20
Section 4.05	Remedies Cumulative		20
Section 4.06	Discontinuance of Proceedings		20

ARTICLE 5 TERMINATION OF MORTGAGE			21
Section 5.01	Termination of Mortgage		21

ARTICLE 6 MISCELLANEOUS			21
Section 6.01	Reserved		21
Section 6.02	Sale of Collateral by the Lender is Binding		21
Section 6.03	Benefit of Mortgage		21
Section 6.04	Notices		21
Section 6.05	Governing Law; Jurisdiction; Service of Process		22
Section 6.06	Counterparts		22
Section 6.07	Waiver; Amendment		22
Section 6.08	Waiver of Jury Trial		22
Section 6.09	Successors and Assigns		23
Section 6.10	Lien Absolute		23
Section 6.11	Section 1110 of the Bankruptcy Code		23

TABLE OF CONTENTS

(continued)

EXHIBITS

Exhibit A Form of Mortgage Supplement

Exhibit B Form of Data Report

AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS,

AND SPARE PARTS

MORTGAGE AND SECURITY AGREEMENT

THIS AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS AND SPARE PARTS MORTGAGE AND SECURITY AGREEMENT dated as of December 22, 2014 (as amended or supplemented from time to time, including by one or more Mortgage Supplements, this “Mortgage”) is made by GREAT LAKES AVIATION, LTD., an Iowa corporation (“Great Lakes”), in favor of CALLIDUS CAPITAL CORPORATION (the “Lender”).

W I T N E S S E T H:

WHEREAS, all things necessary to make this Mortgage the legal, valid and binding obligation of Great Lakes and the Lender, for the uses and purposes herein set forth, in accordance with its terms, have been done and performed and have happened;

WHEREAS, pursuant to that certain Loan Agreement, dated as of the date hereof (as such agreement may be amended, restated, amended and restated, supplemented or otherwise modified, renewed or replaced from time to time, the “Loan Agreement”), by and between Great Lakes and Callidus Capital Corporation, the Lender has agreed to extend certain credit to Great Lakes pursuant to the terms thereof; and

WHEREAS, in order to induce the Lender to enter into the Loan Agreement and the other Credit Documents and in order to induce the Lender to make the Loans as provided for in the Loan Agreement, Great Lakes has agreed to execute and deliver this Mortgage to the Lender for the benefit of the Lender.

GRANTING CLAUSE

NOW, THEREFORE, THIS AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS AND SPARE PARTS MORTGAGE AND SECURITY AGREEMENT WITNESSETH, that, to secure the prompt and complete payment and performance when due of the Obligations of Great Lakes under the Loan Agreement and each of the other Credit Documents, to secure the performance and observance by Great Lakes of all the agreements, covenants and provisions contained herein and in the Credit Documents to which it is a party for the benefit of the Lender, and for the uses and purposes and subject to the terms and provisions hereof, and in consideration of the premises and of the covenants herein contained, and of other good and valuable consideration the receipt and adequacy whereof are hereby acknowledged, Great Lakes has granted, bargained, sold, assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and confirm, unto the Lender, its successors and assigns, for the security and benefit of the Lender, a first priority continuing security interest in and first priority mortgage Lien on all estate, right, title and interest of Great Lakes in, to and under the following described property, rights, interests and privileges whether now or hereafter acquired and subject to the Lien hereof (which collectively, including all property hereafter specifically subjected to the Lien of this Mortgage by any instrument supplemental hereto, are herein called the “Collateral”):

(1) each Aircraft (including, without limitation, each Airframe and its related Engines and Propellers, if any, as indicated in a Mortgage Supplement), as the same is now and will hereafter be constituted, whether now or hereafter acquired and subjected to the Lien hereof, and, in the case of such Engines and Propellers, whether or not any such Engine or Propeller shall be installed in or attached to the related Airframe or any other Airframe or airframe and all substitutions or replacements therefor, as provided in this Mortgage, together with all Parts of whatever nature which are from time to time included in any “Airframe” or its related “Engines” and “Propellers”, whether now or hereafter acquired and subjected to the Lien hereof, and all renewals, substitutions, replacements, additions, improvements, accessories and accumulations with respect to any of the foregoing, and all records, logs, manuals, maintenance data and inspection, modification and overhaul records and other related materials and documents with respect to any of the foregoing (as may be required to be maintained by Great Lakes’ FAA-approved maintenance program);

(2) each Engine, each Spare Engine, each Propeller and each Spare Propeller as the same is now and will hereafter be constituted, whether now or hereafter acquired and subjected to the Lien hereof, and whether or not any such Engine, Spare Engine, Propeller, or Spare Propeller shall be installed in or attached to any Airframe or airframe and all substitutions or replacements therefor, as provided in this Mortgage, together with all Parts of whatever nature which are from time to time included in any “Engine”, “Spare Engine”, “Propeller” or “Spare Propeller”, whether now or hereafter acquired and subjected to the Lien hereof, and all renewals, substitutions, replacements, additions, improvements, accessories and accumulations with respect to any of the foregoing, and all records, logs, manuals, maintenance data and inspection, modification and overhaul records and other related materials and documents with respect to any of the foregoing (as are maintained or as may be required to be maintained by Great Lakes’ FAA-approved maintenance program);

(3) all Spare Parts whether now or hereafter acquired and subjected to the Lien hereof, including any replacements, substitutions or renewals therefor, and accessions thereto, including but not limited to Rotables, Expendables, Key Repairables, Appliances, and located at the applicable Designated Spare Parts Locations;

(4) all proceeds with respect to the requisition of title to or use of each Airframe, Engine, Spare Engine, Propeller or Spare Propeller or any Part thereof, or any Spare Parts, all insurance proceeds or indemnity payments with respect to any of the foregoing and any other proceeds of any kind;

(5) all moneys and securities now or hereafter paid or deposited or required to be paid or deposited to or with the Lender by or for the account of Great Lakes pursuant to the terms hereof and held or required to be held by the Lender hereunder;

(6) any and all property that may, from time to time hereafter, in accordance with the provisions of the Credit Documents, by delivery or by Mortgage Supplement or by other writing of any kind, for the purposes hereof be in any way subjected to the Lien and security interest hereof or be expressly conveyed, mortgaged, assigned, transferred,

deposited hereunder, in which a security interest may be granted by Great Lakes and/or pledged by Great Lakes, or any Person authorized to do so on its behalf or with its consent, to and with the Lender, who are hereby authorized to receive the same at any and all times as and for additional security hereunder;

(7) all rents, issues, profits, revenues and other income of the property subjected or required to be subjected to the Lien of this Mortgage;

(8) all right, title, interest, claims and demands of Great Lakes, in, to and under any lease of any Airframe, Engine or Propeller;

(9) all repair, maintenance and inventory records, logs, tags, manuals and all other documents and materials similar thereto (including, without limitation, any such records (whether on paper or in an electronic format), logs, manuals, documents and materials that are computer print-outs) at any time maintained, created or used by Great Lakes, and all records, logs, tags, documents and other materials required at any time to be maintained by Great Lakes by the FAA or under Title 49, in each case with respect to any of the Pledged Spare Parts;

(10) any Tracking Software; and

(11) all proceeds of the foregoing, including, without limitation, all causes of action, claims and Warranty Rights now or hereafter held by Great Lakes in respect of any of the items listed above and, to the extent related to any property described in said clauses or such proceeds, all books, correspondence, credit files, records, invoices and other papers.

PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions, so long as no Event of Default shall have occurred and be continuing, Great Lakes shall have the right, to the exclusion of the Lender, but subject to the terms and conditions of this Mortgage: (i) to quiet enjoyment of the Aircraft, the Airframes, the Engines, the Spare Engines, the Propellers, the Spare Propellers and Pledged Spare Parts, and to possess, use, retain and control the Aircraft, the Airframes, the Spare Engines, the Spare Propellers and Pledged Spare Parts and (ii) with respect to the Warranty Rights, to exercise in Great Lakes’ name all rights and powers of Great Lakes under the Warranty Rights and to retain any recovery or benefit resulting from the enforcement of any warranty or indemnity or other obligation under the Warranty Rights.

HABENDUM CLAUSE

TO HAVE AND TO HOLD all and singular the aforesaid property unto the Lender and for the uses and purposes and subject to the terms and provisions set forth in this Mortgage.

1. It is expressly agreed that anything herein contained to the contrary notwithstanding, Great Lakes shall remain liable under each of the contracts and agreements included in the Collateral to which it is a party to perform all of the obligations assumed by it thereunder, all in accordance with and pursuant to the terms and provisions thereof, and the Lender shall have no obligation or liability under any such contracts and agreements to which Great Lakes is a party by reason of or arising out of the assignment hereunder, nor shall the

Lender be required or obligated in any manner to perform or fulfill any obligations of Great Lakes, or to make any payment, or to make any inquiry as to the nature or sufficiency of any payment received by it, or present or file any claim, or take any action to collect or enforce the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

2. Great Lakes does hereby designate the Lender, upon the occurrence and during the continuance of an Event of Default, the true and lawful attorney-in-fact of Great Lakes, irrevocably, for good and valuable consideration and coupled with an interest and with full power of substitution (in the name of Great Lakes or otherwise) subject to the terms and conditions of this Mortgage, to ask, require, demand, receive, sue for, compound and give acquittance for any and all moneys and claims for moneys due (in each case including insurance and requisition proceeds and indemnity payments) and to become due to Great Lakes under or arising out of the Collateral, to endorse any checks or other instruments or orders in connection therewith, to file any claims or take any action or institute any proceedings which the Lender may deem to be necessary or advisable in the premises as fully as Great Lakes itself could do generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral (including executing a bill of sale, conveyance, amendment, termination, release, disclaimer, request to cancel US registration, supplement, assignment, airworthiness application or request for a ferry permit or any other document necessary to file with or submit to the FAA in connection with any or all of the Collateral, which documents may be executed by the Lender as attorney in fact for Great Lakes), as fully and completely as though the Lender were the absolute owner thereof for all purposes, and to do, at the Lender’s option and Great Lakes’ expense, at any time, or from time to time, all acts and things which the Lender deems necessary to protect, preserve or realize upon the Collateral and to effect the intent of this Mortgage. Great Lakes agrees that promptly upon receipt thereof, it will transfer to the Lender any and all moneys from time to time received by Great Lakes constituting part of the Collateral to the extent that it is not entitled to retain the same under the express provisions of this Mortgage, for distribution by the Lender pursuant to the Loan Agreement and this Mortgage.

3. Great Lakes agrees that at any time and from time to time upon the written request of the Lender, Great Lakes, at its sole cost and expense, will promptly and duly execute and deliver or cause to be duly executed and delivered any and all such further instruments and documents as the Lender may reasonably deem necessary or desirable, by reference to prudent industry practice, in obtaining the full benefits of the assignment hereunder and/or intended to be effected hereunder and of the rights and powers herein granted and/or intended to be granted hereunder including, without limitation, taking such steps as may be required to establish, maintain or enforce the Lien intended to be granted hereunder in full force and effect (whether under the UCC, Title 49, or the law of any other jurisdiction under which any Aircraft or other portion of the Collateral may be registered).

4. Great Lakes hereby warrants and represents that none of the Collateral is currently subject to any assignment, pledge or other Lien (other than Permitted Liens), and hereby covenants that Great Lakes will not otherwise assign or pledge, so long as the Lien of this Mortgage has not been discharged in accordance with the terms hereof, any of its rights, title or interests hereby assigned to any Person other than the Lender.

5. No other conveyance, assignment or act on the part of Great Lakes or the Lender shall be necessary for any part of the Collateral to become subject to the Lien of this Mortgage.

6. The Collateral shall be subject to release as and to the extent provided in Article 5 hereof.

7. Great Lakes agrees that it will timely and completely pay and perform all of its obligations under this Mortgage and the other Credit Documents.

IT IS HEREBY FURTHER COVENANTED AND AGREED by and among the parties hereto as follows:

ARTICLE 1

DEFINITIONS

Section 1.01 Definitions. (a) For all purposes of this Mortgage, except as otherwise expressly provided or unless the context otherwise requires:

(1) each of the “Great Lakes,” “Lender” or any other Person includes any successor in interest to it and any permitted transferee, permitted purchaser or permitted assignee of it;

(2) the terms defined in this Article 1 have the meanings assigned to them in this Article 1, and include the plural as well as the singular;

(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States, as in effect from time to time;

(4) the words “herein”, “hereof’ and “hereunder” and other words of similar import refer to this Mortgage as a whole and not to any particular Article, Section or other subdivision;

(5) unless otherwise stated, all references in this Mortgage to Articles, Sections and Exhibits refer to Articles, Sections and Exhibits of this Mortgage;

(6) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; and

(7) all capitalized terms used shall have the respective meanings set forth or referred to in Article 1 hereof or, if not defined herein, as defined in the Loan Agreement.

“Aircraft” shall mean each Airframe together with the related Engines and Propellers, if any, as indicated in the initial or any subsequent Mortgage Supplement, whether or not such Engines or Propellers are installed on such Airframe or any other Airframe or airframe.

“Aircraft, Engines, Spare Engines, Propellers, Spare Propellers and Spare Parts Mortgage and Security Agreement” or “this Agreement” or “this Mortgage” shall mean this Aircraft, Spare Engines, Spare Propellers, and Spare Parts Mortgage and Security Agreement, as the same may from time to time be amended, restated, amended and restated, supplemented or otherwise modified.

“Airframe” shall mean: (i) each aircraft or airframe (excluding Engines, Spare Engines, Propellers, Spare Propellers, engines either initially or from time to time installed thereon, or propellers either initially or from time to time installed thereon) specified by Manufacturer, model, United States Registration Number and Manufacturer’s serial number in the initial Mortgage Supplement and any subsequent Mortgage Supplement, and (ii) in either case, any and all Parts which are from time to time incorporated or installed in or attached thereto (including, without limitation, the portion of any quick engine change kits installed thereon) or which have been removed therefrom, unless the Lien of this Mortgage shall not be applicable to such Part in accordance with Section 2.02.

“Appliance” means an instrument, equipment, apparatus, a part, an appurtenance, or an accessory used, capable of being used, or intended to be used, in operating or controlling aircraft in flight, including a parachute, communication equipment, and another mechanism installed in or attached to aircraft during flight, and not a part of an aircraft, engine, or Propeller.

“Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. or other applicable bankruptcy, insolvency or similar laws.

“Cape Town Convention” shall mean the official English language texts of the Convention on International Interests in Mobile Equipment and the Protocols to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment which were signed in Cape Town, South Africa, as in effect from time to time in any applicable jurisdiction.

“Certificated Air Carrier” shall mean a Citizen of the United States holding an air carrier operating certificate issued by the Secretary of Transportation of the United States pursuant to Chapter 447 of Title 49 for aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo or that otherwise is certified or registered to the extent required to fall within the purview of Section 1110 of the Bankruptcy Code or any analogous provision of the Bankruptcy Code enacted in substitution or replacement thereof.

“Citizen of the United States” shall have the meaning given to such term in Section 40102(a)(15) of Title 49 and as that statutory provision has been interpreted by the United States Department of Transportation pursuant to its policies or any similar legislation of the United States enacted in substitution or replacement therefor.

“Collateral” shall have the meaning assigned thereto in the Granting Clause hereof.

“Commitment” shall mean the aggregate of the Loans, as defined in the Loan Agreement, which aggregate commitment shall be THIRTY FOUR MILLION DOLLARS ($34,000,000) on the Closing Date, as such Commitments may be reduced, amortized, or adjusted from time to time in accordance with the Loan Agreement.

“Loan Agreement” shall have the meaning given to that term in the recitals of this Mortgage.

“Data Report” means information and data relating to the Pledged Spare Parts supplied by Great Lakes to the Lender and substantially in the form of Exhibit B to this Mortgage.

“Designated Spare Parts Locations” means the locations in the United States designated from time to time by Great Lakes at which the Pledged Spare Parts may be maintained by or on behalf of Great Lakes, which initially shall be the locations set forth in the initial Mortgage Supplement and shall include the additional locations designated by Great Lakes pursuant to Section 2.06(b).

“Engine” shall mean (i) each of the engines listed by Manufacturer, model and Manufacturer’s serial numbers in Exhibit 1 to the initial Mortgage Supplement and every subsequent Mortgage Supplement, having at least 1750 lbs. of thrust or the equivalent, and whether or not either initially or from time to time installed on an Airframe or any other airframe; and (ii) in either case, any and all Parts which are from time to time incorporated or installed in or attached to any such Engine (including, without limitation, the portion of any quick engine change kits installed thereon) and any and all Parts removed therefrom unless the Lien of this Mortgage shall not apply to such Parts in accordance with Section 2.02.

“Expendables” means Pledged Spare Parts that, once used, cannot be re-used, and if not serviceable, cannot be overhauled or repaired.

“Great Lakes” shall have the meaning given to that term in the first paragraph of this Mortgage.

“Key Repairable” means those Spare Parts, including Appliances, that can be economically restored or repaired to a serviceable condition, but have a life that is considerably less than the life of the flight equipment to which they are related.

“Manufacturer” shall mean, with respect to any Airframe, Engine, Spare Engine, Propeller, Spare Propeller or Spare Part, the manufacturer thereof.

“Mortgage Supplement” shall mean any supplement to this Mortgage which is delivered from time to time pursuant to the terms hereof in the form of Exhibit A hereto.

“Obsolete Parts” shall have the meaning given in Section 2.02(c).

“Opinion of Counsel” means a written opinion from legal counsel to Great Lakes who is reasonably acceptable to the Lender.

“Parts” shall mean any and all appliances, part, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (other than (a) complete Engines, Spare Engines, or engines, Propellers, Spare Propellers or propellers (b) any items leased by Great Lakes, (c) cargo containers, (d) severable components or systems installed on or affixed to an Airframe that are used to provide individual telecommunications or electronic entertainment to passengers aboard an Aircraft, (e) medical and similar emergency equipment and (f) passenger

service items and passenger service equipment generally used in but not affixed to an Aircraft, such as blankets, coffee pots, beverage and meal servicing carts, etc.), so long as the same are incorporated or installed in or attached to any Airframe or any Engine, Spare Engine, Propeller or Spare Propeller or so long as the same are subject to the Lien of the Mortgage in accordance with the terms of Section 2.02 after removal from any Airframe or any Engine, Spare Engine, Propeller or Spare Propeller.

“Pledged Spare Parts” means the Spare Parts included in the Collateral.

“Propeller” includes a part, appurtenance, and accessory of a propeller.

“Rotable” means those Spare Parts, including Appliances, that can be repeatedly and economically restored to a serviceable condition over a period approximating the life of the flight equipment to which they are related.

“Spare Engine” shall mean (i) each of the engines listed by Manufacturer, model and Manufacturer’s serial numbers in Exhibit 1 to the initial Mortgage Supplement and each subsequent Mortgage Supplement, and whether or not either initially or from time to time installed on any Airframe or airframe; and (ii) in either case, any and all Parts which are from time to time incorporated or installed in or attached to any such Spare Engine (including, without limitation, the portion of any quick engine change kits installed thereon) and any and all Parts removed therefrom unless the Lien of this Mortgage shall not apply to such Parts in accordance with Section 2.02.

“Spare Part” means an accessory, appurtenance, or part of an aircraft (except an engine or Propeller), engine (except a Propeller), Propeller, or Appliance, that is to be installed at a later time in an aircraft, engine, Propeller or Appliance and shall include, without limitation, “spare parts” as defined in 49 U.S.C. § 40102(a)(38).

“Spare Propeller” includes a part, appurtenance, and accessory of a propeller that is to be installed at a later time on an aircraft.

“Title 49” shall mean Title 49 of the United States Code, as amended and in effect from time to time, and the regulations promulgated pursuant thereto.

“Tracking Software” means any software utilized by Great Lakes or its designees in its Tracking System to track the Pledged Spare Parts and shall include any licenses, service or support contracts related thereto.

“Tracking System” shall mean Great Lakes’ centralized computer system for monitoring and tracking the location, condition and status of its Spare Parts, and any and all improvements, upgrades or replacement systems. The Tracking System shall include the Tracking Software.¹

“United States” or “U.S.” shall mean the United States of America.

¹	NTD – To determine if Great Lakes has a Tracking System.

“United States Government” shall mean the federal government of the United States or any instrumentality or agency thereof.

“Warranty Rights” means, as to any Airframe, Engine, Spare Engine, Propeller, Spare Propeller or Pledged Spare Part, any continuing rights of Great Lakes in respect of any warranty, indemnity or agreement, express or implied, as to title, materials, workmanship, design or patent infringement or related matters with respect to such Airframe, Engine, Spare Engine, Propeller, Spare Propeller or Pledged Spare Part.

ARTICLE 2

COVENANTS OF GREAT LAKES

Great Lakes represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Mortgage, as follows:

Section 2.01 Possession, Operation and Use, Maintenance and Registration.

(a) Possession. Without the prior written consent of the Lender, Great Lakes shall not lease or otherwise in any manner deliver, transfer or relinquish possession of any Airframe, any Engine or Spare Engine, or any Propeller or Spare Propeller or install any Engine, Spare Engine, Propeller, or Spare Propeller or permit any Engine, Spare Engine, Propeller or Spare Propeller to be installed, on any airframe other than an Airframe; provided that Great Lakes may without the prior written consent of the Lender:

(i) deliver possession of any Airframe or any Engine, Spare Engine, Propeller or Spare Propeller to any Person for testing, service, repair, restoration, storage, maintenance or other similar purposes or for alterations, modifications or additions to such Airframe or such Engine, Spare Engine, Propeller or Spare Propeller to the extent required or permitted by the terms hereof; and

(ii) install an Engine or Spare Engine or a Propeller or Spare Propeller on an airframe owned by Great Lakes free and clear of all Liens, except Permitted Liens;

provided that the rights of any Person who receives possession of any Airframe, any Engine, any Spare Engine, any Propeller or any Spare Propeller by reason of a transfer permitted by this Section 2.01(a) shall be subject and subordinate to all the terms of this Mortgage, including the Lender’s rights to repossess pursuant to Section 4.02, and Great Lakes shall remain primarily liable hereunder for the performance and observance of all of the terms and conditions of this Mortgage, to the same extent as if such transfer had not occurred, and no transfer of possession otherwise in compliance with this Section 2.01 shall (x) result in the maintenance, operation or use thereof that does not comply with Section 2.01(b) and (c), or (y) permit any action not permitted to be taken by Great Lakes with respect to any Aircraft hereunder.

(b) Operation and Use. Great Lakes agrees that no Aircraft, Airframe, Engine, Spare Engine, Propeller, or Spare Propeller will be maintained, used or operated in violation of any law, rule or regulation of any Governmental Authority having jurisdiction over such Aircraft, Airframe, Engine, Spare Engine, Propeller or Spare Propeller or in violation of any airworthiness certificate, license or registration relating to such Aircraft issued by any such Governmental Authority, except for unanticipated, minor or non-recurring violations, and except to the extent Great Lakes is contesting in good faith the validity or application of any such law, rule or regulation in any manner that does not involve any material risk of sale, forfeiture or loss of such Aircraft, Airframe, Engine, Spare Engine, Propeller or Spare Propeller or any material risk of subjecting the Lender to criminal liability or materially impair the Lien of this Mortgage; provided that Great Lakes shall only be entitled to contest mandatory grounding orders if it does not operate such Aircraft or Spare Engine during such contest. Great Lakes will not operate any Aircraft, Airframe, Engine, Spare Engine, Propeller or Spare Propeller or permit any Aircraft, Airframe, Engine, Spare Engine, Propeller or Spare Propeller to be operated or located, (i) in any area excluded from coverage by any insurance required by the terms of the Loan Agreement or (ii) in any war zone or other areas of hostilities.

(c) Maintenance. Great Lakes shall maintain, service, repair and overhaul each Aircraft, Airframe, Engine, Spare Engine, Propeller and Spare Propeller (or cause the same to be done) so as to keep each Aircraft, Airframe, Engine, Spare Engine, Propeller and Spare Propeller in good operating condition and in such condition as may be necessary to enable the airworthiness certification of each Aircraft to be maintained in good standing at all times (other than during temporary periods of storage, during maintenance, testing or modification permitted hereunder, or during periods of grounding by applicable Governmental Authorities, unless such grounding is due to the failure by Great Lakes to maintain such Aircraft in accordance with the terms hereof) under Title 49, during such periods in which such Aircraft is registered under the laws of the United States, using the same standards as Great Lakes uses with respect to similar aircraft operated by Great Lakes in similar circumstances. In any case, each Aircraft, Airframe, Engine, Spare Engine, Propeller and Spare Propeller and Spare Part will be maintained in accordance with the maintenance standards required by the FAA.

(d) Identification of the Lender’s Interest. (i) Great Lakes agrees to affix as promptly as practicable after the Closing Date and thereafter to maintain in the cockpit of each Aircraft, in a clearly visible location, and (if not prevented by applicable law or regulations) on each Engine and Spare Engine a nameplate bearing the inscription “MORTGAGED TO CALLIDUS CAPITAL CORPORATION” (such nameplate to be replaced, if necessary, with a nameplate reflecting the name of any successor Lender).

(ii) On or prior to the Closing Date and from time to time thereafter, Great Lakes shall install signs, in size and form reasonably satisfactory to the Lender, at each of the Designated Spare Parts Locations in which the Pledged Spare Parts are stored and otherwise as may be directed by the Lender within each Designated Spare Parts Location, bearing the inscription: “MORTGAGED TO CALLIDUS CAPITAL CORPORATION” (such sign to be replaced if there is a successor Lender).

(e) Registration. Great Lakes shall cause each Aircraft to remain duly registered, under the laws of the United States, in the name of Great Lakes and no Aircraft shall be registered under the laws of any other country.

Section 2.02 Replacement of Parts; Alterations, Modifications and Additions.

(a) Replacement of Parts. Great Lakes, at its own cost and expense, will promptly replace or cause to be replaced all Parts which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever. In addition, Great Lakes may remove in the ordinary course of maintenance, service, repair, overhaul or testing, any Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or rendered permanently unfit for use; provided that Great Lakes replaces such Parts as promptly as practicable. All replacement Parts shall be owned by Great Lakes free and clear of all Liens (except Permitted Liens and replacement parts temporarily installed on an emergency basis) and shall be in the condition and repair required by the terms hereof. All Parts at any time removed from any Airframe, Engine, Spare Engine, Propeller or Spare Propeller shall remain the property of Great Lakes and subject to the Lien of this Mortgage, no matter where located, until such time as such Parts shall be replaced by Parts which meet the requirements for replacement Parts specified herein. Immediately upon any replacement Part becoming incorporated or installed in or attached to the applicable Airframe, Engine, Spare Engine, Propeller, or Spare Propeller without further act (subject only to Permitted Liens and except replacement parts temporarily installed on an emergency basis), such replacement Part shall become the property of Great Lakes and subject to the Lien of this Mortgage and be deemed a Part for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to such Airframe, Engine, Spare Engine, Propeller or Spare Propeller and the replaced Part shall be free and clear of all rights of the Lender hereunder and shall no longer be deemed a Part hereunder. Upon request of Great Lakes from time to time, the Lender shall, at the sole cost and expense of Great Lakes, execute and deliver to Great Lakes an appropriate instrument confirming the release of any such replaced Part from the Lien of this Mortgage.

(b) Reserved.

(c) Alterations, Modifications and Additions. Great Lakes, at its own expense, will make (or cause to be made) such alterations and modifications in and additions to each Airframe, Engine, Spare Engine, Propeller and Spare Propeller as may be required to be made from time to time so as to comply with any law, rule, regulation or order of any Governmental Authority; provided, however, that Great Lakes may, in good faith, and by appropriate proceedings contest the validity or application of any such law, rule, regulation or order in any reasonable manner, that does not subject Lender to any material risk of any civil or any criminal penalties, or involve any material risk of loss or forfeiture of title to any Airframe, Engine, Spare Engine, Propeller, or Spare Propeller. In addition, Great Lakes, at its own expense, may from time to time add further parts or accessories and make or cause to be made such alterations and modifications in and additions to any Airframe, Engine, Spare Engine, Propeller or Spare Propeller as Great

Lakes may deem desirable in the proper conduct of its business, including removal (without replacement) sale or disposal of Parts which Great Lakes deems to be obsolete or no longer suitable or appropriate for use on such Airframe, Engine, Spare Engine, Propeller or Spare Propeller (such parts, “Obsolete Parts”); provided that no such alteration, modification, removal, sale, disposal or addition materially diminishes the fair market value or utility of such Airframe, Engine, Spare Engine, Propeller, or Spare Propeller below the fair market value or utility thereof immediately prior to such alteration, modification, removal or addition assuming such Airframe, Engine, Spare Engine, Propeller or Spare Propeller was then in the condition required to be maintained by the terms of this Mortgage. In addition, the fair market value (but not the utility) of an Airframe, Engine, Spare Engine, Propeller or Spare Propeller may be reduced by the fair market value, if any, of Obsolete Parts which shall have been removed so long as the aggregate fair market value of all Obsolete Parts which shall have been removed and not replaced with respect to any Aircraft shall not exceed $100,000 in the aggregate. All Parts incorporated or installed in or attached or added to an Airframe, Engine, Spare Engine, Propeller, or Spare Propeller as the result of such alteration, modification or addition (except those parts which are excluded from the definition of Parts) shall, without further act, become subject to the Lien of this Mortgage.

Section 2.03 Reserved.

Section 2.04 Reserved.

Section 2.05 Other Representations, Warranties and Covenants.

(a) Great Lakes hereby represents and warrants that (i) Great Lakes has good title to (x) each of the Airframes, Engines, Spare Engines, Propellers and Spare Propellers that are listed on the initial Mortgage Supplement in its name and will have good title to each of the Airframes, Engines, Spare Engines, Propellers and Spare Propellers listed on each subsequent Mortgage Supplement in its name at the time of execution and delivery thereof; and (y) all of the Spare Parts which are held by or on behalf of Great Lakes at the Designated Spare Parts Locations identified on the initial Mortgage Supplement and will have good title to each of the Spare Parts which are held by or on behalf of Great Lakes at the Designated Spare Parts Locations identified on each subsequent Mortgage Supplement and that such Spare Parts will be held by or on behalf of Great Lakes at the Designated Spare Parts Locations identified on the applicable Mortgage Supplement at the time of execution and delivery; (ii) Great Lakes will have good title to any of its other Collateral which is subject to this Mortgage or which becomes subject to this Mortgage from time to time hereafter; (iii) the Airframes, Engines, Spare Engines, Propellers and Spare Propellers are correctly described by Manufacturer, model and serial number as set forth on the Manufacturer’s serial plate for said Airframes, Engines, Spare Engines, Propellers and Spare Propellers in each case subject to Permitted Liens; and (iv) for purposes of the International Registry, model references for the Airframes, Engines, Spare Engines, Propellers and Spare Propellers set forth in each Mortgage Supplement constitute the manufacturers’ respective generic model designations for such Airframes, Engines, Spare Engines, Propellers and Spare Propellers (as required to be used pursuant to the “regulations” (as defined in the Cape Town Convention)).

(b) Certificated U.S. Air Carrier. Great Lakes hereby confirms that it is a Certificated Air Carrier.

(c) Necessary Filings. Upon the filing of this Mortgage with the FAA in accordance with Title 49 and the regulations thereunder, the filing of financing statements (and continuation statements at periodic intervals) with respect to the security and other interests created hereby under the UCC as in effect in any applicable jurisdiction, the registrations of International Interests in the International Registry with respect to the Airframes, Engines and Spare Engines, and placing of the insignia referred to in Section 2.01(d) herein, (i) all filings, registrations and recordings (including, without limitation, the filing of financing statements under the UCC) necessary in the United States or in the International Registry to create, preserve, protect and perfect the security interest granted by Great Lakes to the Lender hereby in respect of the Collateral have been accomplished or, as to Collateral to become subject to the security interest of this Mortgage as provided herein from time to time after the date hereof, will be so filed, registered and recorded simultaneously with such Collateral being subject to the Lien of this Mortgage, and (ii) the security interest granted to the Lender pursuant to this Mortgage in and to the Collateral will constitute a perfected security interest therein prior to the rights of all other Persons therein, but subject to no other Liens (other than Permitted Liens), and is entitled to all the rights, priorities and benefits afforded by Title 49, the Cape Town Convention, and other relevant U.S. law as enacted in any relevant jurisdiction to perfected security interests or Liens.

(d) No Liens. Great Lakes is, and as to Collateral acquired by it from time to time after the date hereof Great Lakes will be, the owner of all such Collateral free from any Lien, or other right, title or interest of any Person (other than Permitted Liens), and Great Lakes shall promptly, at its own expense, (i) defend the Collateral against all claims and demands of all Persons (other than Persons claiming by, through or under the Lender) at any time claiming the same or any interest therein adverse to the Lender and (ii) take such action as may be necessary to duly discharge any Lien (other than Permitted Liens) arising at any time.

(e) Other Filings or Registrations. There is no financing statement (or similar statement or instrument of encumbrance under the law of any jurisdiction) or registration covering or purporting to cover any interest of any kind in the Collateral (other than Permitted Liens), and there are no International Interests registered on the International Registry in respect of any of the Collateral, and so long as any Commitment remains in effect, or any of the Loans or other amounts are owing to the Lender (other than contingent indemnity obligations not due and payable) under the Loan Agreement, Great Lakes will not execute or authorize or permit to be filed in any public office any financing statement or statements (or similar statement or instrument of encumbrance under the law of any jurisdiction) relating to the Collateral, other than with respect to Permitted Liens, or any International Interests on the International Registry relating to the Collateral or location (as such term is used in Section 9-307 of the UCC).

(f) Identification. The legal name of Great Lakes is Great Lakes Aviation, Ltd., and it is an Iowa corporation. Great Lakes will not change its name or location (as such term is used in Section 9-307 of the UCC) other than in full compliance with applicable provisions of the Loan Agreement.

(g) Recourse. Great Lakes further specifically agrees that it shall not be necessary or required, and that Great Lakes shall not be entitled to require, that the Lender or any other person:

(a) make any effort to enforce the payment or performance by Great Lakes of any of its obligations under this Mortgage or the other Credit Documents, or

(b) foreclose against or seek to realize upon collateral security or other credit support, if any, now or hereafter existing, for the Obligations or any obligations of Great Lakes under this Mortgage or the other Credit Documents, or

(c) file suit or proceed to obtain or assert a claim for personal judgment against Great Lakes or any other person liable for payment or performance of any of the Obligations or of any of the obligations of Great Lakes under this Mortgage or the other Credit Documents, or

(d) exercise or assert any other right or remedy to which the Lender or any other person is or may be entitled in connection with this Mortgage or the other Credit Documents, the Obligations, or any security or other guaranty therefor, or

(e) assert or file any claim against the assets of Great Lakes, or any other person liable for the Obligations or any of the obligations of Great Lakes under this Mortgage or the other Credit Documents, or any part thereof,

before or as a condition precedent to the enforcement of the obligations of Great Lakes hereunder.

Great Lakes hereby unconditionally waives any requirement that, as a condition precedent to the enforcement of the obligations of Great Lakes hereunder, the Lender be joined as a party to any proceedings for the enforcement of any provision of this Mortgage or the other Credit Documents.

(h) Filings and Registrations. Great Lakes will take, or cause to be taken, at Great Lakes’ sole cost and expense, such action with respect to the recording, filing, re-recording and re-filing of this Mortgage and each Mortgage Supplement in the office of the FAA, pursuant to Title 49, and in such other places as may be required under any applicable law or regulation in the U.S., and any financing statements or other instruments, or registrations on the International Registry, as are necessary, or reasonably requested by the Lender and appropriate, to maintain, so long as this Mortgage is in effect, the perfection, priority and preservation of the Lien created by this Mortgage and the International Interests of the Lender in each Airframe, Engine, Spare Engine, Propeller, Spare Propeller and Pledged Spare Part, and will furnish to the Lender timely notice of the necessity of such action, together with, if requested by the Lender, such instruments, in execution form, and such other information as may be reasonably required to enable the Lender to take such action or otherwise reasonably requested by the Lender. To the extent permitted by applicable law, Great Lakes hereby authorizes the Lender to

execute and file financing statements or continuation statements without Great Lakes’ signature appearing thereon. Great Lakes shall pay the costs of, or incidental to, any recording or filing, including, without limitation, any filing of financing or continuation statements, concerning the Collateral.

(i) Notice of Certain Events. Great Lakes shall provide the Lender with prior written notice of its intent to convert any of the Aircraft from passenger configuration to cargo configuration.

(j) Further Assurances. Great Lakes agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Lender may from time to time reasonably request to further assure, preserve, protect and perfect the Lien and the rights and remedies created hereby.

Section 2.06 Pledged Spare Parts.

(a) Reserved.

(b) Designated Spare Parts Locations. Great Lakes represents, warrants and agrees that all of Great Lakes’ Spare Parts shall be maintained by or on behalf of Great Lakes at one or more of the Designated Spare Parts Locations. Great Lakes will promptly notify the Lender in writing if any of the representations, warranties or agreements contained in the preceding sentence becomes inaccurate in any respect with respect to any of the Pledged Spare Parts or the interest of Great Lakes therein. If Great Lakes desires at any time to add a Designated Spare Parts Location, Great Lakes shall promptly furnish the following to the Lender:

(A) thirty (30) days prior to the utilization of such new Designated Spare Parts Location, a Mortgage Supplement duly executed by Great Lakes, identifying each location that is to become a Designated Spare Parts Location and specifically subjecting the Pledged Spare Parts at such location to the Lien of this Mortgage;

(B) five (5) days prior to the utilization of such new Designated Spare Parts Location, an Opinion of Counsel, dated the date of execution of said Mortgage Supplement, stating that said Mortgage Supplement has been duly filed for recording in accordance with the provisions of Title 49, and either: (a) no other filing or recording is required in any other place within the United States in order to perfect the Lien of this Mortgage on the Pledged Spare Parts held at the Designated Spare Parts Locations specified in such Mortgage Supplement, or (b) if any such other filing or recording shall be required that said filing or recording has been accomplished in such other manner and places, which shall be specified in such Opinion of Counsel, as are necessary to perfect the Lien of this Mortgage with respect to such Pledged Spare Parts; and

(C) five (5) days prior to the utilization of such new Designated Spare Parts Location, an Officer’s Certificate stating that in the opinion of the authorized officer executing the Officer’s Certificate, all conditions precedent provided for in this Mortgage relating to the subjection of such property to the Lien of this Mortgage have been complied with.

(i) Possession. Without the prior written consent of the Lender, Great Lakes will not sell, lease (whether by way of a finance lease, operating lease or otherwise), transfer or relinquish possession of any Pledged Spare Part to anyone except as permitted by the provisions of this Section 2.06(c), except that Great Lakes shall have the right, in the ordinary course of its business (and consistent with past practice), (x) to transfer possession of any Pledged Spare Part to the manufacturer thereof or any other organization for testing, overhaul, repairs, maintenance, alterations or modifications (to the extent required or permitted by the terms hereof) or to any Person for the purpose of transport to any of the foregoing, or (y) to transfer any Pledged Spare Part between any Designated Spare Parts Locations.

(ii) Use; Dispositions or Modifications.

(A) Use. Great Lakes shall have the right, at any time and from time to time at its own cost and expense, without the necessity of any release from or consent by the Lender, to:

(1) incorporate in, install on, attach or make appurtenant to, or use in, any aircraft, engine, propeller or spare part in its fleet such Pledged Spare Part; and

(2) dismantle any Pledged Spare Part that has become worn out or obsolete or unfit for use, and to scrap, sell or dispose of any such Pledged Spare Part or any salvage resulting from such dismantling, in which case such Pledged Spare Part shall thereupon be free from the Lien of this Mortgage.

(B) Dispositions and Modifications. Great Lakes may modify or alter any Pledged Spare Parts as Great Lakes may deem appropriate in the proper conduct of its business, so long as Great Lakes remains in compliance at all times with the requirements of Section 2.06(c)(iii) below, after giving effect to any such modification or alteration.

(iii) Maintenance. Great Lakes:

(A) shall maintain, or cause to be maintained, at all times its Pledged Spare Parts in accordance with, (x) all applicable laws and all applicable rules and regulations issued by the FAA and (y) all applicable laws and all applicable rules and regulations issued by any other Governmental Authority having jurisdiction over Great Lakes or any such Pledged Spare Parts, including making any modifications, alterations, replacements and additions necessary therefor;

(B) shall maintain, or cause to be maintained, all records, logs and other materials required by the FAA or under Title 49 to be maintained in respect of its Pledged Spare Parts and shall not modify its record retention procedures in respect of its Pledged Spare Parts unless such modification is consistent with Great Lakes’ FAA approved maintenance program; and

(C) shall maintain, or cause to be maintained on a timely basis, its Pledged Spare Parts in good working order (other than during periods of maintenance, repair, inspection and testing) and condition and shall perform all maintenance thereon necessary for that purpose, excluding (x) Pledged Spare Parts that have become worn out or unfit for use, beyond economic repair or become obsolete or scrap, (y) Pledged Spare Parts and quick change engine kits that are not required for Great Lakes’ normal operations and (z) Expendables that have been consumed or used in Great Lakes’ operations. Notwithstanding anything herein to the contrary, all Rotables and Key Repairables and, to the extent customary, Expendables, located at Designated Spare Parts Locations other than as excluded under clause (x), (y) or (z) above, shall have a current and valid serviceable tag and shall be in compliance with such tag, in each case in compliance with applicable FAA regulations.

(d) Data Reports. After the occurrence and during the continuance of an Event of Default, as requested by the Lender from time to time, Great Lakes shall furnish the Lender with a Data Report certified by an Officer of Great Lakes.

ARTICLE 3

RESERVED

ARTICLE 4

REMEDIES

Section 4.01 Event of Default. It shall be an Event of Default hereunder and for all purposes of the Cape Town Convention, if under the Loan Agreement an “Event of Default” shall occur and be continuing thereunder.

Section 4.02 Remedies with Respect to Collateral.

(a) Remedies Available. Upon (i) the occurrence and continuance of any Event of Default, the Lender may do one or more of the following:

(i) cause Great Lakes, upon the written demand of the Lender, at Great Lakes’ expense, to deliver promptly, and Great Lakes shall deliver promptly, all or such part of the Airframes, the Engines, the Spare Engines, the Propellers, the Spare Propellers or other Collateral as the Lender may so demand to the Lender or its order, or the Lender, at its option, may access the Tracking System and enter upon the premises where all or any part of the Airframes, the Engines, the Spare Engines, the Propellers, the Spare Propellers or other Collateral are located and take immediate possession (to the exclusion of Great Lakes and all Persons claiming under or through Great Lakes) of and remove the same by summary proceedings or otherwise together with any engine which is not an Engine or Spare Engine and any propeller which is not a Propeller or Spare Propeller but which is installed on an Airframe, subject to all of the rights of the owner, lessor, or lien holder of or with respect to such engine or propeller;

(ii) sell all or any part of the Airframes, Engines, Spare Engines, Propellers, Spare Propellers or other Collateral at public or private sale, whether or not the Lender shall at the time have possession thereof, as the Lender may determine, or otherwise dispose of, hold, use, operate, lease to others or keep idle all or any part of the Airframes, the Engines, Spare Engines, Propellers, Spare Propellers or other Collateral as the Lender, in its sole discretion, may determine, all free and clear of any rights or claims of whatsoever kind of Great Lakes, any person claiming by, through or under Great Lakes and any person holding an interest subordinate to the interests of the Lender hereunder; provided, however, that Great Lakes shall not be entitled at any time prior to any such disposition to redeem the Collateral by paying in full all of the Obligations; or

(iii) exercise any or all of the rights and powers and pursue any and all remedies of a secured party under the UCC of the State of New York (whether or not in effect in the jurisdiction in which enforcement is sought) or by any other applicable law (including, without limitation, the Cape Town Convention) or proceed by appropriate court action to enforce the terms or to recover damages for the breach hereof.

Upon every taking of possession of Collateral under this Section 4.02, the Lender may, from time to time, at the expense of Great Lakes, make all such expenditures for maintenance, insurance, repairs, replacements, alterations, additions and improvements to and of the Collateral as it may deem proper. In each such case, the Lender shall have the right to maintain, use, insure, operate, store, lease, control or manage the Collateral and to carry on business and to exercise all rights and powers of Great Lakes relating to the Collateral in connection therewith, as the Lender shall deem appropriate, including the right to enter into any and all such agreements with respect to the maintenance, use, insurance, operation, storage, leasing, control, management or disposition of the Collateral or any part thereof as the Lender may determine; and the Lender shall be entitled to collect and receive directly all tolls, rents, revenues, issues, income, products, proceeds and profits of the Collateral and every part thereof, without prejudice, however, to the right of the Lender under any provision of this Mortgage to collect and receive all cash held by, or required to be deposited with, the Lender hereunder. Such tolls, rents, revenues, issues, income, products, proceeds and profits shall be applied to pay the expenses of using, operating,

storage, leasing, control, management or disposition of the Collateral, and of all maintenance, insurance, repairs, replacement, alterations, additions and improvements, and to make all payments which the Lender may be required or may elect to make, if any, for taxes, assessments, insurance or other proper charges upon the Collateral or any part thereof (including the employment of engineers and accountants to examine, inspect and make reports upon the properties and books and records of Great Lakes), and all other payments which the Lender may be required or authorized to make under any provision of this Mortgage, as well as just and reasonable compensation for the services of the Lender, and of all Persons engaged and employed by the Lender.

In addition, Great Lakes shall be liable for all legal fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of the Lender’s remedies with respect thereto, including all costs and expenses incurred in connection with the retaking, return or sale of any Airframe, Engines, Spare Engines, Propellers, Spare Propellers or other Collateral in accordance with the terms hereof under the UCC of the State of New York, which amounts shall, until paid, be secured by the Lien of this Mortgage.

If any Event of Default shall have occurred and be continuing, or the Loans shall have been declared forthwith due and payable pursuant to the Loan Agreement, the Lender may at any time thereafter while any Event of Default shall be continuing, without notice of any kind to Great Lakes to the extent permitted by law, carry out or enforce any one or more of the actions and remedies provided in this Article 4 or elsewhere in this Mortgage or otherwise available to a secured party under the UCC as in effect at the time in New York State, whether or not any or all of the Collateral is subject to the jurisdiction of such UCC and whether or not such remedies are referred to in this Article 4.

Nothing in the foregoing shall affect the right of the Lender to receive all payments of principal of, and interest on, the Obligations held by the Lender and all other amounts owing to the Lender as and when the same may be due.

(b) Notice of Sale. The Lender shall give Great Lakes at least ten (10) days’ prior written notice of the date fixed for any public sale of any of its Airframes, Engines, Spare Engines, Propellers, Spare Propellers, Spare Parts or other Collateral, or the date on or after which any private sale will be held, which notice Great Lakes hereby agrees is reasonable notice.

(c) Receiver. If any Event of Default shall occur and be continuing, to the extent permitted by law, the Lender shall be entitled, as a matter of right as against Great Lakes, without notice or demand and without regard to the adequacy of the security for the Obligations or the solvency of Great Lakes, upon the commencement of judicial proceedings by it to enforce any right under this Mortgage, to the appointment of a receiver of the Collateral or any part thereof and of the tolls, rents, revenues, issues, income, products and profits thereof for the recovery of judgment for the indebtedness secured by the Lien created under this Mortgage or for the enforcement of any other proper, legal or equitable remedy available under applicable law.

(d) Concerning Sales. At any sale under this Article, the Lender may bid for and purchase the property offered for sale, may make payment on account thereof as herein provided, free of any right of redemption, stay valuation or appraisal on the part of Great Lakes (all said rights being hereby waived and released to the fullest extent permitted by law) and, upon compliance with the terms of sale, may hold, retain and dispose of such property without further accountability therefor. Any purchaser shall be entitled, for the purpose of making payment for the property purchased, to deliver any of the Obligations in lieu of cash in the amount which shall be payable thereon as principal or interest. Said Obligations, in case the amount so payable to the holders thereof shall be less than the amounts due thereon, shall be returned to the holders thereof after being stamped or endorsed to show partial payment.

Section 4.03 Waiver of Appraisement, Etc. Great Lakes, for itself and all who may claim under it, waives, to the extent that it lawfully may, all right to have the property in the Collateral marshalled upon any foreclosure hereof, and agrees that any court having jurisdiction to foreclosure under this Mortgage may order the sale of the Collateral as an entirety.

Section 4.04 Reserved.

Section 4.05 Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Lender or otherwise in this Mortgage shall be cumulative and shall be in addition to every other right, power and remedy specifically given under this Mortgage or the other Credit Documents or now or hereafter existing at law, in equity or by statute or treaty (including, without limitation, the Cape Town Convention) and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Lender. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Lender in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Event of Default or an acquiescence therein. No notice to or demand on Great Lakes in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Lender to any other or further action in any circumstances. In the event that the Lender shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Lender may recover reasonable expenses, including attorneys’ fees, and the amounts thereof shall be included in such judgment.

Section 4.06 Discontinuance of Proceedings. In case the Lender shall have instituted any proceeding to enforce any right, power or remedy under this Mortgage by foreclosure, sale entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Lender, then and in every such case Great Lakes, the Lender and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Mortgage, and all rights, remedies and powers of the Lender shall continue as if no such proceeding had been instituted (but otherwise without prejudice).

ARTICLE 5

TERMINATION OF MORTGAGE

Section 5.01 Termination of Mortgage.

(a) This Mortgage shall terminate on upon the payment in full of the Obligations. Upon termination, Great Lakes may request, at Great Lakes’ sole cost and expense, the Lender to execute and deliver to or as directed in writing by Great Lakes an appropriate instrument reasonably required to release Great Lakes’ Collateral from the Lien of this Mortgage and to discharge from the International Registry the registration of the International Interests constituted by this Mortgage with respect to such Collateral, and the Lender shall execute and deliver such instrument as aforesaid at Great Lakes’ expense; provided, however, that in the event that any portion of the Collateral is sold or otherwise disposed of in accordance with the applicable provisions of the Loan Agreement the Lender shall cooperate, at Great Lakes’ sole cost and expense, in releasing the Lien of this Mortgage from such portion of the Collateral. Except as aforesaid otherwise provided, this Mortgage and the trusts created hereby shall continue in full force and effect in accordance with the terms hereof.

(b) At any time that Great Lakes desires that the Collateral be released as provided in the foregoing Section 5.01(a), it shall deliver to the Lender a certificate signed by an authorized officer stating that the release of the respective Collateral is permitted pursuant to Section 5.01(a) and the Loan Agreement.

ARTICLE 6

MISCELLANEOUS

Section 6.01 Reserved.

Section 6.02 Sale of Collateral by the Lender is Binding. Any sale or other conveyance of any Airframe, Engine, Spare Engine, Propellers, Spare Propellers or other item of Collateral or any interest therein by the Lender made pursuant to the terms of this Mortgage shall bind the Lender and Great Lakes, and shall be effective to transfer or convey all right, title and interest of the Lender and Great Lakes. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such sale or conveyance or as to the application of any sale or other proceeds with respect thereto by the Lender.

Section 6.03 Benefit of Mortgage. Nothing in this Mortgage, whether express or implied, shall be construed to give to any Person other than Great Lakes and the Lender any legal or equitable right, remedy or claim under or in respect of this Mortgage.

Section 6.04 Notices. All notices and other communication provided for herein shall be in the form and to the addresses as set forth in Section 34(d) of the Loan Agreement.

Section 6.05 Governing Law; Jurisdiction; Service of Process. THIS MORTGAGE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS MORTGAGE OR THE SUBJECT MATTER HEREOF BROUGHT BY THE LENDER OR ANY OF ITS SUCCESSORS OR PERMITTED ASSIGNS. EACH PARTY HERETO, TO THE EXTENT PERMITTED BY APPLICABLE LAW, HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS MORTGAGE OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT. EACH PARTY HEREBY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 6.04.

Section 6.06 Counterparts. This Mortgage may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Section 6.07 Waiver; Amendment. (a) No waiver of any provisions of this Mortgage or consent to any departure by Great Lakes therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on Great Lakes in any case shall entitle Great Lakes to any other or further notice or demand in similar or other circumstances.

(b) Neither this Mortgage nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into in accordance with Section 33(i) of the Loan Agreement.

Section 6.08 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS MORTGAGE, OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 6.09 Successors and Assigns. This Mortgage shall be binding upon Great Lakes and its successors and permitted assigns and shall inure to the benefit of the Lender and its respective successors and permitted assigns; provided, that Great Lakes may not transfer or assign any or all of its rights or obligations hereunder without the prior written consent of the Lender. All agreements, statements, representations and warranties made by Great Lakes herein or in any certificate or other instrument delivered by Great Lakes or on its behalf under this Mortgage shall be considered to have been relied upon by the Lender and shall survive the execution and delivery of this Mortgage and the other Credit Documents regardless of any investigation made by the Lender or on its behalf.

Section 6.10 Lien Absolute. All rights of the Lender hereunder, the Lien hereof and all obligations of Great Lakes hereunder shall, to the fullest extent permitted by applicable law, be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any Credit Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all, or any of the Obligations, or any other amendment to or waiver of or any consent to any departure from any Credit Document, or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, Great Lakes in respect of the Obligations or this Agreement (other than that the Obligations have been paid in full).

Section 6.11 Section 1110 of the Bankruptcy Code. It is the intention of the parties to this Mortgage that the Lender be entitled to the benefits of Section 1110 of the Bankruptcy Code, subject to Great Lakes’ rights thereunder, with respect to the right to take possession of Aircraft, Engine, Spare Engines, Propellers, Spare Propellers and Spare Parts, and to enforce any of its other rights or remedies as provided in this Mortgage in the event of a case under Chapter 11 of the Bankruptcy Code in which Great Lakes is a debtor, all subject to the provisions and limitations of the Bankruptcy Code.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, Great Lakes and the Lender have caused this Aircraft, Engines, Spare Engines, Propellers, Spare Propellers and Spare Parts Mortgage and Security Agreement to be duly executed by their respective officers thereunto duly authorized.


GREAT LAKES AVIATION, LTD.,
as Great Lakes

By:		/s/ Michael Matthews
Name: Michael Matthews
Title: Chief Financial Officer

[Signature Page to Aircraft, Engines, Spare Engines, Propellers, Spare Propellers and Spare Parts

Mortgage and Security Agreement]


CALLIDUS CAPITAL CORPORATION,
as Lender

By:		/s/ David Reese
Name:		David Reese
Title:		Chief Operating Officer

By:		/s/ Jim Riley
Name:		Jim Riley
Title:		Director and Secretary

[Signature Page to Aircraft, Engines, Spare Engines, Propellers, Spare Propellers and Spare Parts

Mortgage and Security Agreement]

[AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS,

AND SPARE PARTS MORTGAGE AND SECURITY AGREEMENT]

EXHIBIT A

AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS,

AND SPARE PARTS

MORTGAGE AND SECURITY AGREEMENT

AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS,

AND SPARE PARTS

MORTGAGE AND SECURITY AGREEMENT

SUPPLEMENT NO.

THIS AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS AND SPARE PARTS MORTGAGE AND SECURITY AGREEMENT SUPPLEMENT NO. dated (this “Mortgage Supplement”) is made by Great Lakes Aviation, Ltd., an Iowa corporation (“Great Lakes”), in favor of CALLIDUS CAPITAL CORPORATION (the “Lender”).

W I T N E S S E T H:

WHEREAS, the Aircraft, Engines, Spare Engines, Propellers, Spare Propellers and Spare Parts Mortgage and Security Agreement, dated as of December 22, 2014 (herein called the “Mortgage”; capitalized terms used herein but not defined shall have the meaning ascribed to them in the Mortgage), between Great Lakes and the Lender, provides for the execution and delivery of supplements thereto substantially in the form hereof, which shall particularly describe certain collateral, and shall specifically mortgage the same to the Lender;

WHEREAS, the Mortgage was entered into between Great Lakes and the Lender in order to secure the Obligations of Great Lakes under that certain Loan Agreement, dated as of December 22, 2014 (as such agreement may be amended, restated, amended and restated, supplemented or otherwise modified, renewed or replaced from time to time, herein called the “Loan Agreement”), by and between Great Lakes and the Lender, and the other Credit Documents; and

WHEREAS, the Mortgage relates to the Airframes, Engines, Spare Engines, Propellers, Spare Propellers and Spare Parts described in Exhibit 1 hereto, and [this Mortgage Supplement is attached to and made a part of the Mortgage and is being filed with the Mortgage as one document for recordation on the date hereof with the Federal Aviation Administration;] [was recorded by the FAA on , 20 and assigned Conveyance No. ].

NOW, THEREFORE, this Mortgage Supplement Witnesseth, that to secure the prompt and complete payment and performance when due of the Obligations of Great Lakes under the Loan Agreement and each of the other Credit Documents, to secure the performance and observance by Great Lakes of all the agreements, covenants and provisions contained in the Mortgage and in the Credit Documents for the benefit of the Lender, and for the uses and purposes and subject to the terms and provisions of the Mortgage, and in consideration of the

EXHIBIT A

Page 1

premises and of the covenants contained in the Mortgage, and of other good and valuable consideration the receipt and adequacy whereof are hereby acknowledged, Great Lakes has granted, bargained, sold, assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and confirm, unto the Lender, its successors and assigns, for the security and benefit of the Lender, a first priority continuing security interest in and first priority mortgage lien on all estate, right, title and interest of Great Lakes in, to and under the following described property:

1. The Airframes described on Exhibit 1 hereto together with all Parts which are from time to time incorporated or installed in or attached thereto or which shall be removed therefrom, unless the Lien of the Mortgage shall not be applicable to such Part pursuant to the provisions of the Mortgage.

2. The Engines described on Exhibit 1 hereto (whether or not such engines shall be installed in or attached to an Airframe or any other airframe) in each case, together with all Parts which are from time to time incorporated or installed in or attached thereto or which shall be removed therefrom, unless the Lien of the Mortgage shall not be applicable to such Part pursuant to the provisions of the Mortgage.

3. The Propellers described on Exhibit 1 hereto (whether or not such engines shall be installed in or attached to an Airframe or any other airframe) in each case, together with all Parts which are from time to time incorporated or installed on or attached thereto or which shall be removed therefrom, unless the Lien of the Mortgage shall not be applicable to such Part pursuant to the provisions of the Mortgage.

4. All Spare Parts located at the applicable Designated Spare Parts Locations described in Exhibit 1 hereto.

TO HAVE AND TO HOLD all and singular the aforesaid property unto the Lender, its successors and assigns, for the uses and purposes and subject to the terms and provisions set forth in the Mortgage.

This Mortgage Supplement shall be construed as a supplemental Mortgage and shall form a part thereof, and the Mortgage is hereby incorporated by reference herein and is hereby ratified, approved and confirmed.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

EXHIBIT A

Page 2

IN WITNESS WHEREOF, Great Lakes caused this Mortgage Supplement to be duly executed by one of its officers, thereunto duly authorized, on the day and year first above written.

GREAT LAKES AVIATION, LTD.,

as Great Lakes

By:

Name:

Title:

[Aircraft, Engines, Spare Engines, Propellers, Spare Propellers And Spare Parts Mortgage

And Security Agreement]

EXHIBIT A

Page 3

EXHIBIT B

AIRCRAFT, ENGINES, SPARE ENGINES, PROPELLERS, SPARE PROPELLERS

AND SPARE PARTS

MORTGAGE AND SECURITY AGREEMENT

Callidus Capital Corporation

181 Bay Street, Suite 4260

Bay Wellington Tower

Brookfield Place

Toronto, Ontario

M5J 2T3

, 20

Data Report For Pledged Spare Parts

Ladies and Gentlemen:

We refer to the Aircraft, Engines, Spare Engines, Propellers, Spare Propeller and Spare Parts Security Agreement (the “Security Agreement”), dated as of December 22, 2014, by and between Great Lakes Aviation, Ltd. (“Great Lakes”) and Callidus Capital Corporation, as Lender. Terms defined in the Security Agreement and used herein have such respective defined meanings. Great Lakes hereby certifies that:

Attached hereto as Exhibit 1 is a report that correctly sets forth the following information as of the date hereof with respect to each Pledged Spare Part:

Manufacturer’s part number;

ii)

part description;

iii)

related aircraft model(s) in summary form;

iv)

classification as Rotable or Expendable or Key Repairable;

quantity on hand;

vi)

Designated Spare Parts Location;

vii)

each Pledged Spare Part out for repair; and

viii)

each Pledged Spare Part in transit.

EXHIBIT B

Page 1

Very truly yours,

[ ]

By:

Name:

Title

Date:

EXHIBIT B

Page 2

Exhibit 10.3

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of December 22, 2014 (as amended, supplemented, amended and restated or otherwise modified from time to time, this “Security Agreement”), is by and among GREAT LAKES AVIATION LTD. (“Grantor”), and CALLIDUS CAPITAL CORPORATION, as lender (the “Lender”) under the Loan Agreement referred to herein).

W I T N E S S E T H:

WHEREAS, this Security Agreement is entered into in connection with that certain Loan Agreement, dated as of the date hereof (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Loan Agreement”), among Grantor and Lender; and

WHEREAS, Grantor is required to execute and deliver this Security Agreement; and

WHEREAS, it is in the best interests of Grantor to execute this Security Agreement inasmuch as Grantor will derive substantial direct and indirect benefits from (i) the transactions contemplated by the Loan Agreement, and Grantor is willing to execute, deliver and perform its obligations under this Security Agreement to secure its obligations, under the Loan Agreement, and any other Credit Document;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor agrees, for the benefit of the Lender, as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Security Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof):

“Collateral” has the meaning set forth in Section 2.1.

“Blocked Account” has the meaning set forth in the Loan Agreement.

“Computer Hardware and Software Collateral” means (a) all computer and other electronic data processing hardware, integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware, including all operating system software, utilities and application programs in whatsoever form, (b) software programs (including both source code, object code and all related applications and data files), designed for use on the computers and electronic data processing hardware described in clause (a) above, (c) all firmware associated therewith, (d) all documentation (including flow charts, logic diagrams, manuals, guides, specifications, training materials, charts and pseudo codes) with respect to such hardware, software and firmware described in the preceding clauses (a) through (c), and (e) all rights with respect to all of the foregoing, including copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, improvements, error corrections, updates, additions or model conversions of any of the foregoing, in each case, to the extent Borrower holds any assignable interest therein.

“Control Agreement” means an authenticated record in form and substance reasonably satisfactory to the Lender that provides for the Lender to have “control” (as contemplated in the UCC) over certain Collateral.

“Copyright Collateral” means all copyrights of the Grantor, registered or unregistered and whether published or unpublished, now or hereafter in force throughout the world including all of Grantor’s rights, titles and interests in and to all copyrights registered in the United States Copyright Office (the “U.S. Copyright Office”) or anywhere else in the world, including without limitation those copyrights referred to in Item C of Schedule III hereto, and registrations and recordings thereof and all applications for registration thereof, whether pending or in preparation, all copyright licenses, the right to sue for past, present and future infringements of any of the foregoing, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and Proceeds of suit, which are owned or licensed by Grantor.

“Distributions” means all cash, cash dividends, stock dividends, other distributions, liquidating dividends, shares of stock resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, and all other distributions or payments (whether similar or dissimilar to the foregoing) on or with respect to, or on account of, any Pledged Share or Pledged Interest or other rights or interests constituting Collateral.

“Equipment” has the meaning set forth in Section 2.1(b).

“Equity Interest” means any shares, interests, participation, or other equivalents (however designated) of corporate stock, membership interests or partnership interests (or any other ownership interests) of Grantor in any other person.

“General Intangibles” means all “general intangibles” and all “payment intangibles”, each as defined in the UCC, and shall include all interest rate or currency protection or hedging arrangements, all tax refunds, all licenses, permits, concessions and authorizations and all Intellectual Property Collateral (in each case, regardless of whether characterized as general intangibles under the UCC).

“Governmental Approval” has the meaning set forth in Section 2.1(g).

“Indemnified Parties” has the meaning set forth in Section 6.3(a).

“Intellectual Property Collateral” means, collectively, the Computer Hardware and Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral.

“Inventory” has the meaning set forth in Section 2.1(c).

“Loan Agreement” has the meaning set forth in the first recital.

“Patent Collateral” means (a) all inventions and discoveries, whether patentable or not, all letters patent and applications for letters patent throughout the world, including without limitation those patents referred to in Item A of Schedule III hereto, and any patent applications in preparation for filing, (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clause (a), (c) all patent licenses, and other agreements providing the

-2-

Grantor with the right to use any items of the type referred to in clauses (a) and (b) above, and (d) all proceeds of, and rights associated with, the foregoing (including licenses, royalties income, payments, claims, damages and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, and for breach or enforcement of any patent license.

“Pledged Interests” means all Equity Interests or other ownership interests of any Pledged Interests Issuer held by Grantor; all registrations, certificates, articles, by-laws, regulations, limited liability company agreements or constitutive agreements governing or representing any such interests; all options and other rights, contractual or otherwise, at any time existing with respect to such interests, as such interests are amended, modified, or supplemented from time to time, and together with any interests in any Pledged Interests Issuer taken in extension or renewal thereof or substitution therefor.

“Pledged Interests Issuer” means each person that is an issuer of Pledged Shares or Pledged Interests.

“Pledged Note Issuer” means each person identified in Schedule I hereto as the issuer of the Pledged Notes identified opposite the name of such person.

“Pledged Notes” means all promissory notes of any Pledged Note Issuer evidencing Debt in form and substance reasonably satisfactory to the Lender delivered by the Grantor to the Lender as Pledged Property hereunder, as such promissory notes, in accordance with Section 7.3, are amended, modified or supplemented from time to time and together with any promissory note of any Pledged Note Issuer taken in extension or renewal thereof or substitution therefor.

“Pledged Property” means all Pledged Notes, Pledged Interests, Pledged Shares, all assignments of any amounts due or to become due with respect to the Pledged Interests or the Pledged Shares, all other instruments which are now being delivered by the Grantor to the Lender or may from time to time hereafter be delivered by the Grantor to the Lender for the purpose of pledging under this Security Agreement or any other Credit Document, and all proceeds of any of the foregoing.

“Pledged Shares” means all Equity Interests of any Pledged Interests Issuer held by Grantor which are evidenced by a certificate delivered by Grantor to the Lender as Pledged Property hereunder.

“Receivables” has the meaning set forth in Section 2.1(d).

“Related Contracts” has the meaning set forth in Section 2.1(d).

“Obligations” has the meaning set forth in Section 2.2(a).

“Security Agreement” has the meaning set forth in the preamble.

“Termination Date” means the date that all Obligations have been paid in full in cash other than contingent indemnification Obligations to the extent no claim giving rise thereto has been asserted.

“Trademark Collateral” means (a) (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos and other source or business identifiers, and all goodwill of the business associated therewith, now existing or hereafter adopted or acquired, including without limitation those trademarks referred to in Item B of Schedule III hereto, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for

-3-

filing, including registrations, recordings and applications in the United States Patent and Trademark Office (“USPTO”) or in any office or agency of the United States of America, or any state thereof or any other country or political subdivision thereof or otherwise, and all common-law rights relating to the foregoing, and (ii) the right to obtain all reissues, extensions or renewals of the foregoing (collectively referred to as the “Trademarks” and each, a “Trademark”), (b) all Trademark licenses for the grant by or to the Grantor of any right to use any Trademark, (c) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clause (a), and to the extent applicable clause (b), (d) the right to sue third parties for past, present and future infringements of any Trademark Collateral described in clause (a) and, to the extent applicable, clause (b), and (e) all Proceeds of, and rights associated with, the foregoing, including any claim by the Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license and all rights corresponding thereto throughout the world.

“Trade Secrets Collateral” means all common law and statutory trade secrets and all other confidential, proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of Grantor, (all of the foregoing being collectively called a “Trade Secret”), including all Documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license.

“UCC” means the Uniform Commercial Code, as in effect in the State of New York, as the same may be amended from time to time.

SECTION 1.2. Loan Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Loan Agreement.

SECTION 1.3. UCC Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the UCC are used in this Security Agreement, including its preamble and recitals, with such meanings.

SECTION 1.4. Miscellaneous. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Security Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements (including this Security Agreement) are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified and shall include all schedules and exhibits thereto unless otherwise specified. The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Security Agreement shall refer to this Security Agreement as a whole and not to any particular provision of this Security Agreement. The term “including” means “including, without limitation,”. Paragraph headings have been inserted in this Security Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Security Agreement and shall not be used in the interpretation of any provision of this Security Agreement.

-4-

ARTICLE II

SECURITY INTEREST

SECTION 2.1. Grant of Security Interest. Grantor hereby pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to the Lender, and hereby grants to the Lender, a continuing security interest in all of Grantor’s right, title and interest in, to and under, all of the following, whether now owned or hereafter acquired by Grantor, and wherever located and whether now owned or hereafter existing or arising (collectively, the “Collateral”):

(a) all equipment in all of its forms (including, but not limited to vehicles, titled motor vehicles, rolling stock, vessels, wherever located, and all machinery, equipment, facilities, supplies, or other tangible personal property, including tubing, rods, pumps, pumping units and engines, pipe, pipelines, meters, apparatus, boilers, compressors, liquid extractors, connectors, valves, fittings, power plants, poles, lines, cables, wires, transformers, starters and controllers, machine shops, tools, machinery and parts, storage yards and equipment stored therein, buildings and camps, telegraph, telephone, and other communication systems, loading docks, loading racks, and shipping facilities, and any manuals, instructions, blueprints, computer software (including software that is imbedded in and part of the equipment), and similar items which relate to the above, any and all additions, substitutions and replacements of any of the foregoing, wherever located together with all improvements thereon and all attachments, components, parts, equipment and accessories installed thereon or affixed thereto, and any other item constituting “equipment” under the UCC (any and all of the foregoing being the “Equipment”);

(b) all inventory in all of its forms of Grantor, wherever located, and all accessions thereto, products thereof and documents therefore, and any other item constituting “inventory” under the UCC (any and all of the foregoing being the “Inventory”);

(c) all accounts, money, payment intangibles, deposit accounts (including the Blocked Accounts and all amounts on deposit therein and all cash equivalent investments carried therein and all proceeds thereof), contracts, contract rights, all rights constituting a right to the payment of money, chattel paper, documents, documents of title, instruments, letters of credit, letter of credit rights and General Intangibles of Grantor, whether or not earned by performance or arising out of or in connection with the sale or lease of goods or the rendering of services, including all moneys due or to become due in repayment of any loans or advances, all rights of Grantor now or hereafter existing in and to all security agreements, guaranties, leases, agreements and other contracts securing or otherwise relating to any such accounts, money, payment intangibles, deposit accounts, contracts, contract rights, rights to the payment of money, chattel paper, documents, documents of title, instruments, letters of credit, letter of credit rights and General Intangibles, and any other item constituting “accounts” under the UCC (any and all of the foregoing being the “Receivables”, and any and all such security agreements, guaranties, leases, agreements and other contracts being the “Related Contracts”);

(d) all Intellectual Property Collateral of Grantor;

(e) all books, correspondence, credit files, records, invoices, tapes, cards, computer runs, writings, data bases, information in all forms, paper and documents and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing in this Section 2.1;

-5-

(f) all governmental approvals, permits, licenses, authorizations, consents, rulings, tariffs, rates, certifications, waivers, exemptions, filings, claims, orders, judgments and decrees (each a “Governmental Approval”), to the extent a security interest may be granted therein; provided that any Governmental Approval that by its terms or by operation of law would be void, voidable, terminable or revocable if mortgaged, pledged or assigned hereunder is expressly excepted and excluded from the Liens and terms of this Security Agreement, including the grant of security interest in this Section 2.1;

(g) all interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect Grantor against fluctuations in interest rates or currency exchange rates and all commodity hedge, commodity swap, exchange, forward, future, floor, collar or cap agreements, fixed price agreements and all other agreements or arrangements designed to protect Grantor against fluctuations in commodity prices (including, without limitation, any hedging arrangement);

(h) to the extent not included in the foregoing, all bank accounts, investment property, fixtures and supporting obligations;

(i) all Pledged Notes, whether now or hereafter delivered to the Lender in connection with this Security Agreement, interest, and other payments and rights with respect to such Pledged Notes;

(j) (A) all policies of insurance now or hereafter held by or on behalf of Grantor, including casualty, foreign credit insurance, and any title insurance but excluding liability insurance, and director and officer insurance, (B) all proceeds of such insurance, and (C) all rights, now or hereafter held by Grantor to any warranties of any manufacturer or contractor of any other person;

(k) all accessions, substitutions, replacements, products, offspring, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), (j) and (k) and proceeds deposited from time to time in any lock boxes of Grantor, and, to the extent not otherwise included, all payments and proceeds under insurance (whether or not the Lender is the loss payee thereof), or any condemnation award, indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the Collateral);

(l) any and all Liens and security interests (together with the documents evidencing such security interests) granted to Grantor by an obligor to secure such obligor’s obligations owing under any instrument, chattel paper, or contract that is pledged hereunder or with respect to which a security interest in Grantor’s rights in such Instrument, Chattel Paper, or contract is granted hereunder; and

(m) all of Grantor’s other property and rights of every kind and description and interests therein, including without limitation, all other “Accounts”, “Certificated Securities”, “Chattel Paper”, “Commercial Tort Claims”, “Commodity Accounts”, “Commodity Contracts”, “Deposit Accounts”, “Documents”, “Equipment”, “Fixtures”, “General Intangibles”, “Goods”, “Instruments”, “Inventory”, “Investment Property”, “Letter of Credit Rights”, “Letters of Credit”, “Money”, “Payment Intangibles”, “Proceeds”, “Securities”, “Securities Account”, “Security Entitlements”, “Supporting Obligations” and “Uncertificated Securities” as such terms are defined in the UCC;

-6-

SECTION 2.2. Security for Obligations.

(a) This Security Agreement, and the Collateral in which the Lender is granted a security interest hereunder by Grantor, secures the prompt and indefeasible payment in full and performance of all Obligations (as defined in the Loan Agreement) of Grantor and each other obligor now or hereafter existing, whether for principal, interest, costs, fees, expenses or otherwise, howsoever created, arising or evidenced, whether direct or indirect, primary or secondary, fixed or absolute or contingent, joint or several, or now or hereafter existing under this Security Agreement and each other Credit Document to which it is or may become a party (all such obligations being the “Obligations”).

(b) Notwithstanding anything contained herein to the contrary, it is the intention of Grantor and the Lender that the amount of the Obligations secured by Grantor’s interests in any of its Property shall be in, but not in excess of, the maximum amount permitted by fraudulent conveyance, fraudulent transfer and other similar law, rule or regulation of any Governmental Authority applicable to Grantor. Accordingly, notwithstanding anything to the contrary contained in this Security Agreement or in any other agreement or instrument executed in connection with the payment of any of the Obligations, the amount of the Obligations secured by Grantor’s interests in any of its Property pursuant to this Security Agreement shall be limited to an aggregate amount equal to the largest amount that would not render Grantor’s obligations hereunder or the Liens and security interest granted to the Lender hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provision of any other applicable law.

SECTION 2.3. Continuing Security Interest; Transfer of Loans; Reinstatement. This Security Agreement shall create continuing security interests in the Collateral and shall (a) remain in full force and effect until the Termination Date, (b) be binding upon Grantor and its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender and its successors, transferees and assigns, subject to the limitations as set forth in the Loan Agreement. Without limiting the generality of the foregoing clause (c), Lender may assign or otherwise transfer (in whole or in part) any of the Obligations to the extent provided in the Loan Agreement, and any successor or assignee thereof shall thereupon become vested with all the rights and benefits in respect thereof granted to Lender under any Credit Document (including this Security Agreement), or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and as applicable to the provisions of the Loan Agreement. If at any time all or any part of any payment theretofore applied by Lender to any of the Obligations is or must be rescinded or returned by Lender for any reason whatsoever (including, without limitation, the insolvency, bankruptcy, reorganization or other similar proceeding of Grantor or any other person), such Obligations shall, for purposes of this Security Agreement, to the extent that such payment is or must be rescinded or returned, be deemed to have continued to be in existence, notwithstanding any application by Lender or any termination agreement or release provided to the Grantor, and this Security Agreement shall continue to be effective or reinstated, as the case may be, as to such Obligations, all as though such application by the Lender had not been made.

SECTION 2.4. Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and will perform all of its duties and obligations under such contracts and agreements to the same extent as if this Security

-7-

Agreement had not been executed, (b) the exercise by the Lender of any of its rights hereunder shall not release Grantor from any of its duties or obligations under any such contracts or agreements included in the Collateral, and (c) the Lender shall not have any obligation or liability under any contracts or agreements included in the Collateral by reason of this Security Agreement, nor shall the Lender be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

SECTION 2.5. Delivery of Pledged Property.

(a) Other than as provided in the last sentence of Section 4.5 below, all certificates or instruments representing or evidencing any Collateral, including Pledged Notes, shall be delivered to and held by or on behalf of (or in the case of the Pledged Notes, endorsed to the order of) the Lender pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary endorsements or instruments of transfer or assignment, duly executed in blank.

(b) To the extent any of the Collateral constitutes an “uncertificated security” (as defined in Section 8-102(a)(18) of the UCC) or a “security entitlement” (as defined in Section 8-102(a)(17) of the UCC), Grantor shall take and cause the appropriate person (including any issuer, entitlement holder or securities intermediary thereof) to take all actions necessary to grant “control” (as defined in 8-106 of the UCC) to the Lender over such Collateral.

SECTION 2.6. Reserved.

SECTION 2.7 Security Interest Absolute, etc. This Security Agreement shall in all respects be a continuing, absolute, unconditional and irrevocable grant of security interest, and shall remain in full force and effect until the Termination Date. All rights of the Lender and the security interests granted to the Lender hereunder, and all obligations of Grantor hereunder, shall, in each case, be absolute, unconditional and irrevocable irrespective of (a) any lack of validity, legality or enforceability of any Credit Document, (b) the failure of the Lender (i) to assert any claim or demand or to enforce any right or remedy against the Grantor or any other person under the provisions of any Credit Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Obligations, (c) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Obligations, or any other extension, compromise or renewal of any Obligations, (d) any reduction, limitation, impairment or termination of any Obligations (except in the case of the occurrence of the Termination Date) for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and Grantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to or departure from, any of the terms of any Credit Document, (f) any addition, exchange or release of any Collateral of the Obligations, or any surrender or non-perfection of any collateral, or any amendment to or waiver or release or addition to, or consent to or departure from, any other guaranty held by the Lender securing any of the Obligations, or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Grantor, any surety or any guarantor.

-8-

SECTION 2.7. Election of Remedies. Except as otherwise provided in the Loan Agreement, if Lender may, under applicable law, proceed to realize its benefits under this Security Agreement or the other Credit Documents giving Lender a Lien upon any Collateral, either by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Security Agreement. If, in the exercise of any of its rights and remedies Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against Grantor or any other person, whether because of any applicable laws pertaining to “election of remedies” or the like, Grantor hereby consents to such action by Lender and waives any claim based upon such action, even if such action by Lender shall result in a full or partial loss of any rights of subrogation that Grantor might otherwise have had but for such action by Lender.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

In order to induce the Lender to enter into the Loan Agreement and make Loans thereunder Grantor represents and warrants unto Lender as set forth in this Article.

SECTION 3.1. Validity, etc. This Security Agreement and the other Credit Documents to which Grantor is a party constitutes the legal, valid and binding obligations of Grantor, enforceable against Grantor in accordance with their respective terms (except, in any case, as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally and by principles of equity).

SECTION 3.2. Ownership, No Liens, etc. Grantor is the legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge, grant and assign) the Collateral, free and clear of all Liens, except Permitted Liens (as defined in the Loan Agreement). No effective UCC financing statement or other filing similar in effect covering all or any part of the Collateral is on file in any recording office, except those filed in favor of Lender relating to this Security Agreement, Permitted Liens, or as to which a duly authorized termination statement relating to such UCC financing statement or other instrument has been delivered to Lender on the Effective Date or as to which Lender is otherwise authorized to file termination statements. This Security Agreement creates a valid security interest in the Collateral, securing the payment of the Obligations, and, except for the proper filing of the applicable financing statements with the filing offices listed on Item A-1 of Schedule II attached hereto, and the execution and delivery of Control Agreements, all filings and other actions necessary to perfect and protect such security interest, in those portions of Collateral that can be perfected by, amongst other things, the (i) filing of a financing statement, or (ii) entering into of a Control Agreement, have been duly taken and such security interest shall be a first priority security interest.

SECTION 3.3. As to Investment Property.

(a) In the case of each Pledged Note, all of such Pledged Notes have been duly authorized, executed, endorsed, issued and delivered, and are the legal, valid and binding obligation of the issuers thereof, and are not in default and, as of the date hereof are listed in Schedule II.

-9-

SECTION 3.4. Grantor’s Name, Location, etc.

(a) Other than as otherwise permitted pursuant to any Credit Document, (i) the jurisdiction in which Grantor is located for purposes of Sections 9-301 and 9-307 of the UCC is set forth in Item A-1 of Schedule II hereto, (ii) the place of business of Grantor or, if Grantor has more than one place of business, the chief executive office of Grantor and the office where Grantor keeps its records concerning the Receivables, and all originals of all Chattel Paper which evidence Receivables, is set forth in Item A-2 of Schedule II hereto, and (iii) Grantor’s federal taxpayer identification number is set forth in Item A-3 of Schedule II hereto.

(b) Grantor has not been known by any legal name different from the one set forth on the signature page hereto, nor has Grantor been the subject of any merger or other corporate reorganization, except as set forth in Item B of Schedule II hereto.

(d) Grantor does not maintain any Deposit Accounts, Securities Accounts or Commodity Accounts with any person, in each case, except as set forth on Item C of Schedule II or as otherwise disclosed to Lender.

(e) None of the Receivables is evidenced by a promissory note or other instrument other than a promissory note or instrument that has been delivered to the Lender (with appropriate endorsements).

(f) Grantor is not the beneficiary of any Letters of Credit except as set forth on Item D of Schedule II, and as subsequently disclosed to Lender by written notification.

(g) Grantor does not have Commercial Tort Claims except as set forth on Item E of Schedule II, and as subsequently disclosed to Lender by written notification.

(h) Grantor has not consented to, and is otherwise unaware of, any person (other than the Lender) having control (within the meaning of Section 9-104 of the UCC) over, or any other interest in any of Grantor’s rights in respect of the foregoing, other than Permitted Liens.

SECTION 3.5. Possession of Inventory, Control; etc. Grantor (a) has exclusive possession and control, subject to Permitted Liens, of the Equipment and Inventory except as permitted under the Credit Documents, and (b) is the sole entitlement holder of its Accounts and no other person (other than the Lender) has “control” or “possession” of, or any other interest in, any of its Accounts or any other securities or property credited thereto except as permitted pursuant to the Credit Documents, including a Control Agreement.

SECTION 3.6. Negotiable Documents, Instruments and Chattel Paper. Grantor has, contemporaneously herewith, delivered to the Lender possession of all originals of all Documents, Instruments, promissory notes, Pledged Notes and tangible Chattel Paper owned or held by Grantor (duly endorsed, in blank, if requested by the Lender).

SECTION 3.7. Intellectual Property Collateral. Grantor represents that except for any Patent Collateral, Trademark Collateral, and Copyright Collateral specified in Item A, Item B and Item C, of Schedule III hereto, and any and all Trade Secrets Collateral, Grantor does not own and has no interests in any Intellectual Property Collateral as of the

-10-

date hereof, other than the Computer Hardware and Software Collateral. Grantor further represents and warrants that, with respect to all Intellectual Property Collateral (a) such Intellectual Property Collateral is valid, subsisting, unexpired and enforceable and has not been abandoned or adjudged invalid or unenforceable, in whole or in part, (b) Grantor is the sole and exclusive owner or a licensee of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral, subject to Permitted Encumbrances, and no claim has been made that the use of such Intellectual Property Collateral does or may, conflict with, infringe, misappropriate, dilute, misuse or otherwise violate any of the rights of any third party in any material respects, (c) Grantor has made all necessary filings and recordations to protect its interest in such material Intellectual Property Collateral, including recordations of any of its interests in the Patent Collateral and Trademark Collateral in the USPTO and in corresponding offices throughout the world, and its claims to the Copyright Collateral in the U.S. Copyright Office and in corresponding offices throughout the world, and, to the extent necessary, has used and has directed all licensees to use proper statutory notice in connection with its use of any material patent, Trademark and copyright in any of the Intellectual Property Collateral, (d) Grantor has taken all reasonable steps to safeguard its Trade Secrets and to its knowledge none of the Trade Secrets of Grantor has been used, divulged, disclosed or appropriated for the benefit of any other person other than Grantor, (e) to Grantor’s knowledge, no third party is infringing upon any material Intellectual Property Collateral owned or used by Grantor in any material respect, or any of its licensees, (f) no settlement or consents, covenants not to sue, nonassertion assurances, or releases have been entered into by Grantor or to which Grantor is bound that adversely affects its rights to own or use any Intellectual Property Collateral, (g) Grantor has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale or transfer of any Intellectual Property Collateral for purposes of granting a security interest or as Collateral that has not been terminated or released, (h) Grantor uses adequate standards of quality in the manufacture, distribution, and sale of all products sold and in the provision of all services rendered under or in connection with any Trademarks and has taken all commercially reasonable action necessary to insure that any licensees of any Trademarks owned by Grantor use such adequate standards of quality, (i) the consummation of the transactions contemplated by the Loan Agreement and this Security Agreement will not result in the termination or material impairment of any material portion of the Intellectual Property Collateral, and (j) Grantor owns directly or is entitled to use by license or otherwise, any patents, Trademarks, tradenames, Trade Secrets, copyrights, mask works, licenses, technology, know-how, processes and rights with respect to any of the foregoing used in, and necessary for the conduct of Grantor’s business in any material respect.

SECTION 3.8. Authorization, Approval, etc. Except as have been obtained or made and are in full force and effect, no Governmental Approval, authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or any other third party is required either (a) for the grant by Grantor of the security interest granted hereby or for the execution, delivery and performance of this Security Agreement by Grantor, or (b) for the perfection or maintenance of the security interests hereunder including the first priority (subject to Permitted Leins) nature of such security interest (except with respect to the recordation of applicable filing statements and notices) or the exercise by the Lender of its rights and remedies hereunder.

-11-

SECTION 3.9. Best Interests. It is in the best interests of Grantor to execute this Security Agreement in as much as Grantor will, as a result of being a Borrower derive substantial direct and indirect benefits from the Loans and other extensions of credit made from time to time to Grantor by the Lender, and Grantor agrees that the Lender is relying on this representation in agreeing to make such Loans and other extensions of credit pursuant to the Loan Agreement. Furthermore, such extensions of credit are in furtherance of Grantor’s corporate purposes and necessary or convenient to the conduct, promotion or attainment of Grantor’s business.

SECTION 3.10. Reaffirmation of Representations and Warranties. All of the representations and warranties made by Grantor in the Loan Agreement or in any other Credit Document are true and correct in all respects as if such representations and warranties were incorporated herein in their entirety and made by Grantor.

ARTICLE IV

COVENANTS

Grantor covenants and agrees that, until the Termination Date, it will perform, comply with and be bound by the obligations set forth below.

SECTION 4.1. As to Accounts.

(a) With respect to each of the Blocked Accounts, it is hereby confirmed and agreed that (i) deposits in such Blocked Account are subject to a security interest as contemplated hereby, (ii) such Blocked Account shall be under the control of the Lender, and (iii) the Lender shall have the sole right of withdrawal over such Blocked Account.

(b) Grantor shall not adjust, settle, or compromise the amount or payment of any Receivable, nor release wholly or partly any account debtor or obligor thereof, nor allow any credit or discount thereon; provided that, the Grantor may make such adjustments, settlements or compromises and release wholly or partly any account debtor or obligor thereof and allow any credit or discounts thereon so long as (i) no Event of Default has occurred and is continuing, (ii) such action is taken in the ordinary course of business and consistent with past practices, and (iii) such action is, in Grantor’s good faith business judgment, commercially reasonable.

SECTION 4.2. As to Grantor’s Use of Collateral.

(a) Subject to clause (b), Grantor (i) may in the ordinary course of its business, at its own expense use and operate the Collateral, (ii) shall, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any of the Collateral, including the taking of such action with respect to such collection as the Lender may request following the occurrence and during the continuance of an Event of Default or, in the absence of such request, as Grantor may deem advisable, and (iii) may grant, in the ordinary course of business, to any party obligated on any of the Collateral, any rebate, refund or allowance to which such party may be lawfully entitled.

(b) At any time following the occurrence and during the continuance of an Event of Default, whether before or after the maturity of any of the Obligations, Lender may (i) revoke any or all of the rights of Grantor set forth in clause (a), (ii) notify any parties obligated on any of the Collateral to make payment to the Lender of any amounts due or to become due thereunder, and (iii) enforce collection of any of the Collateral by suit or otherwise and surrender, release, or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby.

-12-

(c) Upon request of the Lender following the occurrence and during the continuance of an Event of Default, Grantor will, at its own expense, notify any parties obligated on any of the Collateral to make payment to the Lender of any amounts due or to become due thereunder.

(d) At any time following the occurrence and during the continuation of an Event of Default, the Lender may endorse, in the name of the Grantor, any item, howsoever received by the Lender, representing any payment on or other Proceeds of any of the Collateral.

SECTION 4.3. As to Equipment and Inventory. Grantor hereby agrees that it shall (a) keep all of the Equipment and Inventory located in a jurisdiction within the United States of America and Canada where all representations and warranties set forth in Article III shall be true and correct with respect to such Collateral, and (b) pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory, except to the extent the validity thereof is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside.

SECTION 4.4. As to Intellectual Property Collateral. Grantor covenants and agrees to comply with the following provisions as such provisions relate to any Intellectual Property Collateral material to the operations or business of Grantor:

(a) Grantor will not (i) do or fail to perform any act whereby any material Patent Collateral may lapse or become abandoned or dedicated to the public or unenforceable, (ii) permit any of its licensees to (A) fail to continue to use any of the Trademark Collateral in order to maintain all of the Trademark Collateral in full force free from any claim of abandonment for non-use, (B) fail to maintain as in the past the quality of products and services offered under all of the Trademark Collateral, (C) fail to employ all of the Trademark Collateral registered with any federal or state or foreign authority with an appropriate notice of such registration, (D) adopt or use any other Trademark which is confusingly similar or a colorable imitation of any of the Trademark Collateral, (E) use any of the Trademark Collateral registered with any federal, state or foreign authority except for the uses for which registration or application for registration of all of the Trademark Collateral has been made, or (F) do or permit any act or knowingly omit to do any act whereby any of the Trademark Collateral may lapse or become invalid or unenforceable, or (iii) do or permit any act or knowingly omit to do any act whereby any of the Copyright Collateral or any of the Trade Secrets Collateral may lapse or become invalid or unenforceable or placed in the public domain except upon expiration of the end of an unrenewable term of a registration thereof, unless, in the case of any of the foregoing requirements in clauses (i), (ii) and (iii), Grantor shall reasonably and in good faith determine that any of such Intellectual Property Collateral is of negligible economic value to Grantor;

(b) Grantor shall promptly notify the Lender if it knows that any application or registration relating to any material item of the Intellectual Property Collateral may become abandoned or dedicated to the public or placed in the public domain or invalid or unenforceable, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the USPTO, the U.S. Copyright Office or any foreign counterpart thereof or any court) regarding Grantor’s ownership of any of the Intellectual Property Collateral, its right to register the same or to keep and maintain and enforce the same;

-13-

(c) in no event will Grantor or any of its agents, employees, designees or licensees file an application for the registration of any material Intellectual Property Collateral with the USPTO, the U.S. Copyright Office or any similar office or agency in any other country or any political subdivision thereof, unless it promptly informs the Lender, and upon request of the Lender (subject to the terms of the Loan Agreement), executes and delivers all agreements, instruments and documents as the Lender may reasonably request to evidence the Lender’s security interest in such Intellectual Property Collateral;

(d) Grantor will take all necessary steps, including in any proceeding before the USPTO, the U.S. Copyright Office or (subject to the terms of the Loan Agreement) any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue any application (and to obtain the relevant registration) filed with respect to, and to maintain any registration of, each material Intellectual Property Collateral, including the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and the payment of fees and taxes (except to the extent that dedication, abandonment or invalidation is permitted under the foregoing clause (a) or (b));

(e) following the obtaining of an interest in any material Intellectual Property Collateral by Grantor, Grantor shall deliver a supplement to Schedule III identifying new Intellectual Property Collateral; and

(f) following the obtaining of an interest in any material Intellectual Property Collateral by Grantor or, following the occurrence and during the continuance of an Event of Default, upon the request of the Lender, Grantor shall deliver all agreements, instruments and documents the Lender may reasonably request to evidence the Lender’s security interest in such Intellectual Property Collateral and as may otherwise be required to acknowledge or register or perfect the Lender’s interest in any part of such item of Intellectual Property Collateral unless Grantor shall determine in good faith (with the consent of the Lender) that any Intellectual Property Collateral is of negligible economic value to Grantor.

SECTION 4.5. As to Letter of Credit Rights.

(a) Grantor, by granting a security interest in its Letter of Credit Rights to the Lender, intends to (and hereby does) collaterally assign to the Lender its rights (including its contingent rights ) to the Proceeds of all Letter of Credit Rights of which it is or hereafter becomes a beneficiary or assignee. Grantor will comply with the reporting requirements related to letters of credit in the Loan Agreement. With respect to letters of credit having a face amount in excess of $100,000, Borrower will, upon request of Lender, request that the issuer and each nominated person (if any) with respect thereto consent to an assignment of the Proceeds thereof in a consent agreement in form and substance reasonably satisfactory to the Lender.

(b) During the existence of an Event of Default, Grantor will, promptly upon request by the Lender, (i) notify (and Grantor hereby authorizes the Lender to notify) the issuer and each nominated person with respect to each of the Letters of Credit that the Proceeds thereof have been assigned to the Lender hereunder and any payments due or to become due in respect thereof are to be made directly to the Lender and (ii) arrange for the Lender to become the transferee beneficiary of each Letter of Credit.

SECTION 4.6. As to Commercial Tort Claims. Grantor covenants and agrees that, until the Termination Date, it shall deliver to the Lender a supplement to Schedule II in form and substance reasonably satisfactory to the Lender, identifying such new Commercial Tort Claims if Borrower’s claim thereunder exceeds $100,000.

-14-

SECTION 4.7. As to Electronic Chattel Paper and Transferable Records. If Grantor at any time holds or acquires an interest in any electronic chattel paper or any “transferable record,” as that term is defined in Section 201 of the U.S. Federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the U.S. Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, in each case having a value exceeding $100,000, Grantor shall promptly notify the Lender thereof and, at the request of the Lender, shall take such action as the Lender may request to vest in the Lender control under Section 9-105 of the UCC of such electronic chattel paper or control under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record. The Lender agrees with Grantor that the Lender will arrange, pursuant to procedures reasonably satisfactory to the Lender and so long as such procedures will not result in the Lender’s loss of control, for Grantor to make alterations to the electronic chattel paper or transferable record permitted under Section 9-105 of the UCC or, as the case may be, Section 201 of the U.S. Federal Electronic Signatures in Global and National Commerce Act or Section 16 of the U.S. Uniform Electronic Transactions Act for a party in control to allow without loss of control, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by Grantor with respect to such electronic chattel paper or transferable record.

SECTION 4.8. Reserved.

SECTION 4.9. Transfers and Other Liens. The Grantor shall not: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, except Inventory in the ordinary course of business or as specifically permitted by the Loan Agreement, or (b) create or suffer to exist any Lien or other charge or encumbrance upon or with respect to any of the Collateral to secure Debt of any person or entity, except for the security interest created by this Security Agreement and except for Liens specifically permitted by the Loan Agreement.

SECTION 4.10. Further Assurances, etc. Grantor warrants and shall defend the right and title herein granted unto the Lender in and to the Collateral (and all right, title and interest represented by the Collateral) against the claims and demands of all persons whomsoever, subject to Permitted Liens. Grantor agrees that, from time to time at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that the Lender may reasonably request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any Collateral subject to the terms hereof. Grantor agrees that, upon the acquisition after the date hereof by Grantor of any Collateral, with respect to which the security interest granted hereunder is not perfected automatically upon such acquisition, to take such actions with respect to such Collateral or any part thereof as required by the Credit Documents. Without limiting the generality of the foregoing, Grantor will:

(a) if any Collateral shall be evidenced by an Instrument, negotiable Document, promissory note or tangible Chattel Paper, deliver and pledge to the Lender hereunder such Instrument, negotiable Document, promissory note, Pledged Note or tangible Chattel Paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Lender;

-15-

(b) file (and hereby authorize the Lender to file) such filing statements or continuation statements, or amendments thereto, and such other instruments or notices (including any assignment of claim form under or pursuant to the federal assignment of claims statute, 31 U.S.C. § 3726, any successor or amended version thereof or any regulation promulgated under or pursuant to any version thereof), as may be necessary or that the Lender may request in order to perfect and preserve the security interests and other rights granted or purported to be granted to the Lender hereby. The authorization contained in this Section 4.12 shall be irrevocable and continuing until the Termination Date;

(c) deliver to the Lender and at all times keep pledged to the Lender pursuant hereto, on a first-priority, perfected basis (except for Permitted Liens), at the request of the Lender, all Investment Property constituting Collateral, all Distributions permitted by the Loan Agreement with respect thereto and all interest and principal with respect to promissory notes, and all Proceeds and rights from time to time received by or distributable to Grantor in respect of any of the foregoing Collateral;

(d) not take or omit to take any action the taking or the omission of which would result in any impairment or alteration of any obligation of the maker of any Payment Intangible or other Instrument constituting Collateral, except as provided in Section 4.4;

(e) not create any tangible Chattel Paper without placing a legend on such tangible Chattel Paper reasonably acceptable to the Lender indicating that the Lender has a security interest in such Chattel Paper;

(f) furnish to the Lender, from time to time at the Lender’s request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request, all in reasonable detail; and

(g) do all things reasonably requested by the Lender in accordance with this Security Agreement and the Loan Agreement in order to enable the Lender to have and maintain control over the Collateral consisting of Investment Property, Deposit Accounts, Letter of Credit Rights and Electronic Chattel Paper.

Grantor agrees that a carbon, photographic or other reproduction of this Security Agreement or any UCC financing statement covering the Collateral or any part thereof shall be sufficient as a UCC financing statement where permitted by law. Grantor hereby authorizes the Lender to file financing statements describing as the collateral covered thereby “all of the debtor’s personal property or assets” or words to that effect, notwithstanding that such wording may be broader in scope than the Collateral described in this Security Agreement.

ARTICLE V

THE LENDER

SECTION 5.1. Lender Appointed Attorney-in-Fact. Grantor hereby irrevocably appoints the Lender its attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor or otherwise, from time to time in the Lender’s discretion, following the occurrence and during the continuance of an Event of Default, to take any action and to execute any instrument which the Lender may deem necessary or advisable to accomplish the purposes of this Security Agreement, including (a) to ask,

-16-

demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (b) to receive, endorse, and collect any drafts or other Instruments, Documents and Chattel Paper, in connection with clause (a) above, (c) to file any claims or take any action or institute any proceedings which the Lender may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Lender with respect to any of the Collateral, and (d) to perform the affirmative obligations of Grantor hereunder. GRANTOR HEREBY ACKNOWLEDGES, CONSENTS AND AGREES THAT THE POWER OF ATTORNEY GRANTED PURSUANT TO THIS SECTION 5.1 IS IRREVOCABLE AND COUPLED WITH AN INTEREST AND SHALL BE EFFECTIVE UNTIL THE TERMINATION DATE.

SECTION 5.2. Lender May Perform. If Grantor fails to perform any agreement contained herein, following the expiration of any applicable grace or cure period, the Lender may itself perform, or cause performance of, such agreement, and the expenses of the Lender incurred in connection therewith shall be payable by Grantor pursuant to the Loan Agreement and the Lender may from time to time take any other action which the Lender reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest.

SECTION 5.3. Lender Has No Duty. The powers conferred on the Lender hereunder are solely to protect its interest in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Lender shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Investment Property and any other Pledged Property, whether or not the Lender has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

SECTION 5.4. Reasonable Care. The Lender is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, that the Lender shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral (a) if such Collateral is accorded treatment substantially equal to that which the Lender accords its own personal property, or (b) if the Lender takes such action for that purpose as the Grantor reasonably requests in writing at times other than upon the occurrence and during the continuance of an Event of Default; provided, further, that failure of the Lender to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care.

ARTICLE VI

REMEDIES

SECTION 6.1. Certain Remedies. If any Event of Default shall have occurred and be continuing:

-17-

(a) The Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a Lender on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may (i) take possession of any Collateral not already in its possession without demand and without legal process, (ii) require Grantor to, and Grantor hereby agrees that it will, at its expense and upon request of the Lender forthwith, assemble all or part of the Collateral as directed by the Lender and make it available to the Lender at a place to be designated by the Lender that is reasonably convenient to both parties, (iii) subject to applicable law or agreements with landlords, enter onto the property where any Collateral is located and take possession thereof without demand and without legal process, and (iv) without notice except as specified below, lease, license, sell or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Lender may deem commercially reasonable. Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days’ prior notice to Grantor of the time and place of any public sale or the time of any private sale is to be made shall constitute reasonable notification; provided, however, that with respect to Collateral that is (x) perishable or threatens to decline speedily in value, or (y) is of a type customarily sold on a recognized market (including but not limited to, Investment Property), no notice of sale or disposition need be given. For purposes of this Article VI, notice of any intended sale or disposition of any Collateral may be given by first-class mail, hand-delivery (through a delivery service or otherwise), facsimile or email, and shall be deemed to have been “sent” upon deposit in the U.S. Mails with adequate postage properly affixed, upon delivery to an express delivery service or upon electronic submission through telephonic or internet services, as applicable. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(b) Grantor agrees and acknowledges that (i) Lender may remove the Collateral or any part thereof from property in accordance with statutory law appertaining thereto without objection, delay, hindrance or interference by Grantor and in such case Grantor will make no claim or demand whatsoever against the Collateral, (ii) it will (x) cooperate with Lender in its efforts to assemble and/or remove all of the Collateral; (y) permit Lender and its agents to enter upon property and occupy the property at any or all times to conduct an auction or sale, and/or to inspect, audit, examine, safeguard, assemble, appraise, display, remove, maintain, prepare for sale or lease, repair, lease, transfer, auction and/or sell the Collateral; and (z) not hinder Lender’s actions in enforcing its security interest in the Collateral.

(c) Grantor agrees and acknowledges that a commercially reasonable disposition of Inventory, Equipment, Goods, Computer Hardware and Software Collateral, or Intellectual Property Collateral may be by lease or license of, in addition to the sale of, such Collateral. Grantor further agrees and acknowledges that the following shall be deemed a reasonable commercial disposition: (i) a disposition made in the usual manner on any recognized market, (ii) a disposition at the price current in any recognized market at the time of disposition, and (iii) a disposition in conformity with reasonable commercial practices among dealers in the type of property subject to the disposition.

(d) All cash Proceeds received by the Lender in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral shall be applied by the Lender against, all or any part of the Obligations as determined by the Lender in its sole discretion. The Lender shall not be obligated to apply or pay over for application noncash proceeds of collection or enforcement unless (i) the failure to do so would be commercially unreasonable, and (ii) the affected party has provided the Lender with a written demand to apply or pay over such noncash proceeds on such basis.

-18-

(e) The Lender may do any or all of the following: (i) transfer all or any part of the Collateral into the name of the Lender or its nominee, with or without disclosing that such Collateral is subject to the Lien hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Lender of any amount due or to become due thereunder, (iii) withdraw, or cause or direct the withdrawal, of all funds with respect to the Blocked Account and Disbursement Account(s), (iv) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (v) endorse any checks, drafts, or other writings in the applicable Grantor’s name to allow collection of the Collateral, (vi) take control of any Proceeds of the Collateral, or (vii) execute (in the name, place and stead of Grantor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral.

SECTION 6.2. Compliance with Restrictions. Grantor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Lender is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority or official, and Grantor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Lender be liable nor accountable to Grantor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction.

SECTION 6.3. Indemnity and Expenses.

(a) GRANTOR HEREBY INDEMNIFIES AND HOLDS HARMLESS THE LENDER, AND EACH OF ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS (THE “INDEMNIFIED PARTIES”) FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES AND LIABILITIES ARISING OUT OF OR RESULTING FROM THIS SECURITY AGREEMENT OR ANY OTHER CREDIT DOCUMENT (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS SECURITY AGREEMENT), EXCEPT CLAIMS, LOSSES OR LIABILITIES THAT ARE FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; PROVIDED, HOWEVER, THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT EACH INDEMNIFIED PARTY BE INDEMNIFIED IN THE CASE OF ITS OWN NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE OR CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL. If and to the extent that the foregoing undertaking may be unenforceable for any reason, Grantor hereby agrees to make the maximum contribution to the payment and satisfaction of each of the foregoing which is permissible under applicable law.

-19-

SECTION 6.4. Warranties. The Lender may sell the Collateral without giving any warranties or representations as to the Collateral. The Lender may disclaim any warranties of title or the like. Grantor agrees that this procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

ARTICLE VII

MISCELLANEOUS PROVISIONS

SECTION 7.1. Credit Document. This Security Agreement is a Credit Document executed pursuant to the Loan Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof.

SECTION 7.2. Binding on Successors, Transferees and Assigns; Assignment. This Security Agreement shall remain in full force and effect until the Termination Date has occurred, shall be binding upon Grantor and its successors, transferees and assigns and, subject to the limitations set forth in the Loan Agreement, shall inure to the benefit of and be enforceable by Lender and its successors, transferees and assigns; provided that, Grantor shall not assign any of its obligations hereunder (unless otherwise permitted under the terms of the Loan Agreement or this Security Agreement).

SECTION 7.3. Amendments, etc. No amendment to or waiver of any provision of this Security Agreement, nor consent to any departure by Grantor from its obligations under this Security Agreement, shall in any event be effective unless the same shall be in writing and signed by the Lender and Grantor and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

SECTION 7.4. Notices. Except as otherwise provided in this Security Agreement, all notices and other communications provided for hereunder shall be in writing and hand delivered with written receipt, telecopied, sent by facsimile (with a hard copy sent as otherwise permitted pursuant to the Loan Agreement), sent by a nationally recognized overnight courier, or sent by certified mail, return receipt requested to the appropriate party at the address or facsimile number of such party specified in the Loan Agreement, on the signature pages of this Security Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other party. Except as otherwise provided in this Security Agreement, all such notices and communications shall be effective when delivered.

SECTION 7.5. No Waiver; Remedies. In addition to, and not in limitation of Section 2.7, no failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

SECTION 7.6. Headings. The various headings of this Security Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Security Agreement or any provisions thereof.

-20-

SECTION 7.7. Severability. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Security Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

SECTION 7.8. Counterparts. This Security Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Delivery of an executed counterpart of a signature page to this Security Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Security Agreement.

SECTION 7.9. Conflicts with Loan Agreement. To the fullest extent possible, the terms and provisions of the Loan Agreement shall be read together with the terms and provisions of this Security Agreement so that the terms and provisions of this Security Agreement do not conflict with the terms and provisions of the Loan Agreement; provided, however, notwithstanding the foregoing, in the event that any of the terms or provisions of this Security Agreement conflict with any terms or provisions of the Loan Agreement, the terms or provisions of the Loan Agreement shall govern and control for all purposes; provided that the inclusion in this Security Agreement of terms and provisions, supplemental rights or remedies in favor of the Lender not addressed in the Loan Agreement shall not be deemed to be in conflict with the Loan Agreement and all such additional terms, provisions, supplemental rights or remedies contained herein shall be given full force and effect.

SECTION 7.10. Waiver of Jury Trial. GRANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, EACH CREDIT DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER IN CONNECTION THEREWITH. GRANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER CREDIT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THE CREDIT DOCUMENTS.

SECTION 7.11. Governing Law; Service of Process This Security Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without regard to conflicts of laws principles except to the extent that the validity or perfection of the security interests hereunder, or remedies hereunder, in respect of any particular Collateral are governed by the laws of a jurisdiction other than the State of New York. Grantor hereby agrees that service of copies of the summons and complaint and any other process which may be served in any such action or proceeding may be made by mailing or delivering a copy of such process to Grantor at its address set forth in this Security Agreement. Nothing in this Section shall affect the rights of the Lender to serve legal process in any other manner permitted by the law or affect the right of the Lender to bring any action or proceeding against the Grantor or its Property in the courts of any other jurisdiction.

-21-

SECTION 7.12. Submission to Jurisdiction. GRANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY (MANHATTAN) AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND GRANTOR IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. GRANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

SECTION 7.13. Waiver of Venue. GRANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENT, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT IN ANY COURT REFERRED TO IN SECTION 7.12. GRANTOR HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENT, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

THIS SECURITY AGREEMENT AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND SUPERSEDE ALL PRIOR UNDERSTANDINGS AND AGREEMENTS, WHETHER WRITTEN OR ORAL, RELATING TO THE TRANSACTIONS PROVIDED FOR HEREIN AND THEREIN. ADDITIONALLY, THIS SECURITY AGREEMENT AND THE CREDIT DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[Remainder of this page intentionally left blank. Signature pages to follow.]

-22-

IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be duly executed and delivered by its Responsible Officer as of the date first above written.


GRANTORS

GREAT LAKES AVIATION, LTD.

By:		/s/ Michael Matthews

Its:		Chief Financial Officer

[Signature Page to Security Agreement]


LENDER:

CALLIDUS CAPITAL CORPORATION

By:		/s/ David Reese


Name:		David Reese


Title:		Chief Operating Officer



By:		/s/ Jim Riley


Name:		Jim Riley


Title:		Director and Secretary

[Signature Page to Security Agreement]

SCHEDULE I

to Security Agreement

PLEDGED NOTES

None.

SCHEDULE II

to Security Agreement

Item A-1.

Location of Grantor for purposes of UCC.

Filing office: Uniform Commercial Code records of the Secretary of State of Iowa

Location: Iowa

Item A-2.

Grantor’s place of business or principal office.

Great Lakes Aviation, Ltd.

1022 Airport Parkway

Cheyenne, WY 82001

Item A-3.

Taxpayer ID number.

42-1135319

Item B.

Merger or other corporate reorganization.

None.

Item C.

Deposit Accounts and Securities Accounts.

Schedule 19(a) to the Loan Agreement is hereby incorporated by reference.

Item D.

Letter of Credit Rights.

None.

Item E.

Commercial Tort Claims.

None

SCHEDULE III – A

to Security Agreement

INTELLECTUAL PROPERTY COLLATERAL

Item A. Patent Collateral.

None

SCHEDULE III – B

to Security

Agreement

Item B. Trademark Collateral

None

SCHEDULE III – C

to Security Agreement

Item C. Copyright Collateral.

None

SCHEDULES TO SUPPLEMENT NO. 1

[AS APPROPRIATE]

Great Lakes Aviation (CE) (USOTC:GLUX)
Historical Stock Chart
From Apr 2024 to May 2024

Click Here for more Great Lakes Aviation (CE) Charts.

Great Lakes Aviation (CE) (USOTC:GLUX)
Historical Stock Chart
From May 2023 to May 2024

Great Lakes Aviation, Ltd.

Date: December 22, 2014

/s/ Michael O. Matthews

Michael O. Matthews

Chief Financial Officer